Lex Mercatoria



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The "Transnational" Political Economy:

A Framework for Analysis.[*]

Jarrod Wiener, University of Kent at Canterbury[**]


Private International Trade Law:

The Positivist Perspective.

The Autonomist Perspective.

The Sources of the Lex Mercatoria: "Lex", or "Principa".

Applicability and Coercive Force.

"Delocalised International Commercial Arbitration":

Preliminary Observations:

Public International Trade Law.

Normative, Structural Imperatives of the Transnational Political Economy.

Conclusion: The Agenda for Research:




Sovereignty, Authority, and Governance:





SiSU Metadata, document information


SiSU Manifest, alternative outputs etc.

The "Transnational" Political Economy: - A Framework for Analysis.

Jarrod Wiener

copy @ Lex Mercatoria

The "Transnational" Political Economy:

A Framework for Analysis.[*]

Jarrod Wiener, University of Kent at Canterbury[**]

The Sources of the Lex Mercatoria: "Lex", or "Principa".

The idea of a lex mercatoria has not gone without criticism. Critiques have concerned the extent of precision of the sources of the lex mercatoria, the suitability of attributing the term "law" to its component parts, its claimed universality, the extent of its usefulness and applicability by arbitrators, and its predictability and ability to produce just resolutions of disputes.

The status of public international law as a component of the lex mercatoria is unsettled. There is, of course, the traditional view that only states are subjects of public international law. On the other hand, there is the view that the provisions of the Vienna Convention on the Law of Treaties (1969) reflects common practices and therefore is suitable to international contracts.  19  In support of this is the concept of "internationalised" contracts that had been applied to, for example, the Texaco v Libya arbitration. The rationale for this is that foreign investors would not submit a long-term contract to the vagaries of the law of the host-state, while the host state would not submit to the laws of another state. Therefore, there emerged an "international law of contracts".  20  Far from a concept "created" by the arbitrators that heard the cases, the list of concession agreements from the 1940s and 1950s that make reference to vague internationalised choices of law show that "the parties are groping after some legal system which is not the territorial law of either party".  21  And, Article 42 of the ICSID Convention does permit an arbitrator to apply the laws of the host state as well as principles of international law to a dispute where the parties have not made an express choice of law. Moreover, as Lord McNair has argued, public international law derives its source from general principles of law., ie consistent with Article 38(1)c of the Statute of the International Court of Justice. This source can equally inform another system of law, namely, the lex mercatoria. In his words: "the legal system appropriate to the type of contract under consideration is not public international law but shares with public international law a common source of recruitment and inspiration, namely, the general principles of law recognised by civilised nations".  22 

Having said that, the extent to which "general principles of law common to commercial nations" is a reliable source has been questioned. Schlosser has raised the point that different systems of law permit damages if defective goods are delivered, whereas others simply permit the buyer to cancel the contract.  23  Moreover, it has been argued that one would be hard-pressed to find any principles of law common to Saudi Arabia and China, for example.  24  It is in this context that some have advocated a "micro lex mercatoria". As explained by Mustill, this would involve only the legal systems that are directly concerned with the contract. The drawback of this would be that there would exist "constellations of para-laws, Franco-Belgian, Anglo-Dutch, Italo-Hispano-Korean, and so on".  25  But this need not necessarily be the case. Mustill's observation derives its comical appeal from mixing the methodology of the autonomist with a positivist, territorial, conception of what constitutes a legal system. It is conceivable that there could be a series of functional, transnational micro lex mercatoriae, for instance, within the societas mercatorum. In other words, the commercial communities of corn traders, while relying on such universal terms as f.o.b and c.i.f, could supplement these with their own rules that would be distinct from rubber traders, and which the businesspersons of both Saudi Arabia and China must observe if they wish to participate effectively within the trading regimes that govern these areas. Yet even then, as Mustill points out, there is "no guarantee of homogeneity even within a single trade" and that "if the parties to a commodity transaction do not wish to bind themselves to, say, the GAFTA Contract Form No.100, there is no legal or other institution which can compel them to do so.  26 

However, it must be recognised that traders from all states would not be participants within even these small micro mercatoria, since not all municipal systems permit party autonomy - which is the fundamental "trunc commun" that permits the lex mercatoria to come into being - is not recognised by all commercial states. It is true that parties to a contract are generally free to express a choice of law in their contract, and this is to be respected, so long as this choice is not fraudulent for the purposes of evasion of aspects of the law that would otherwise be applicable, and does not contravene mandatory public law rules.  27  However, both Goldman and Schmitthoff overstate the extent to which the principle is recognised "universally". For instance, the Chinese Law on Economic Contracts restricts the choice of law to one that is connected with the contract, and Venezuelan law also restricts the choice of law. Moreover, some Latin American, North African and Arab countries go further to require that any contract performed in their countries shall be governed by their own national laws and jurisdictions.  28  The choice of Saudi Arabia in the example in the preceding paragraph is (deliberately) erroneous - merchants in Saudi Arabia are required to choose Saudi law. Thus, for De Ly, there are varying degrees of "opposition to the notion of universally conceived principles of international business law or a universal and autonomous lex mercatoria".  29 

Moreover, it has been argued that those principles that are universally recognised are so fundamental and basic to any system of law as to preclude their mention. Indeed, Lord Mustill asked, "what principles of trade law, apart from those which are so general as to be useless, are common to the legal systems of the members of such a community?"  30  The principle of pacata sunt servanda, for example, can be taken as given: for a piece of paper to be a contract there must be the a priori assumption that a contract is something that should be performed. Precisely how it should be performed, what interpretations are to be given to its clauses, and what are the respective rights and obligations of parties are the issues that are determined by a law. If commercial law is a device for conflict avoidance and management, to state that contracts must be performed is to state the obvious, without giving any guidance as to how disputes are to be resolved. A similar point can be made of "good faith", and so on. Even less guidance is given by the lex mercatoria in specific disputes, for instance, over labour provisions in a contract. To state that "general principles" constitute a self-contained system of law is tantamount to suggesting that because buildings are constructed in all states of the world, the universal use of sand, limestone and pebbles constitutes an autonomous "building order". This, of course, is not the case, since bricks can be moulded in different shapes and sizes, some are engineered in a more technologically advanced manner to withstand higher stress tolerances, and architecture is influenced by geography, climate, culture, and so on. It is this imprecision of definition, and the fact that these components of the lex mercatoria are more properly termed "stepping stones" to real rules of law, rather than rules themselves, that has led critics, such as Keith Highet, to term them "principa mercatoria", rather than "lex mercatoria".  31 

As regard customs and usages, it has been argued that, "if the custom of international commercial transactions were sufficiently well understood throughout the world, there would be no need for national legislation embodying it; and if national legislation were sufficiently uniform throughout the world, there would be no need for international codification".  32  The legal status of Incoterms is unsettled, since different national systems have different attitudes towards such trade usages.  33  Similarly, although the bankers' associations in 175 states had accepted the 1974 edition of the UCP, the legal status of such trade usages has also been questioned.  34  It has also been argued that ICC documents cannot be taken as a codification of the lex mercatoria, as there is no codifying "authority" in the traditional sense, in the community of merchants.  35 

In an attempt to prove the credibility of the lex mercatoria on traditional criteria, some have suggested that the United Nations Convention on Contracts for the International Sale of Goods (Vienna Sales Convention, 1980), particularly Article 9, provides expression to the lex mercatoria within a statutory framework.  36  It provides that:

1.The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.

2.The parties are considered, unless otherwise agreed, to have impliedly made applicable to their contract or its formation a usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned.  37 

Bernard Audit has interpreted this to mean that the purpose of the Convention is to "give recognition to the rules born of commercial practice and to encourage municipal courts to apply them", and that "the Convention itself can be regarded as the expression of international mercantile custom".  38  He continues that this Article is significant because it "acknowledges that rules not made by states can be imposed upon the parties".  39  He concludes therefore that the Convention, "must be regarded as an autonomous system, capable of generating new rules" and that "under the Convention, the lex mercatoria is the chief source of the applicable law for international transactions".  40 

One criticism of this is that, in order to take effect, the Vienna Convention had to be ratified into municipal law, and took effect in the UK under the Sale of Goods Act (1979).  41  This is an unfortunate criticism, since, while criticising the autonomist approach it actually strengthens the case of the positivists: the whole point, according to the latter, is that domestic laws have international sources.  42  John Honnold, however, has made an interesting observation, though not connected with the debate on the lex mercatoria. He pointed out in his exposition of the Vienna Convention that it was the intent of its drafters to give it staying power. He referred to Article 9(2) as an "important vehicle for flexibility" not in the sense that it mandates the application of usages which are held to be a pillar of the lex mercatoria, but in the sense that this passage contributes to the longevity of the Convention. In order to be flexible, the Convention would have to be applicable in a changing international commercial environment. Given that the Convention took ten years to harmonise the two 1964 Conventions (the Uniform Law for the International Sale of Goods (ULIS) and the Uniform Law on the Formation of Contracts for the International Sale of Goods (ULF)), themselves the product of work since the 1930s, the insertion of Article 9(2) can be seen as a pragmatic attempt to avoid producing a uniform law that would be outdated by the time of its ratification by states, or very shortly thereafter. Honnold expressed the rationale as, "[a]lthough the statutory norms may grow old, applicable practices and usages may keep up with changing times and may respond to special circumstances and needs".  43  The intention of the Convention, therefore, was not to reify an autonomous body of law.

Similarly, Article 7 of the Convention establishes the need to promote "the observance of good faith in international trade". Honnold notes that "good faith is only a guide for interpretation and is less sweeping that the general good faith requirements of some legal systems".  44  He continued that, "the Convention rejects "good faith" as a general requirement and uses "good faith" solely as a principle for interpreting the provisions of the Convention".  45  The reference to "general principles", he added, was made in fear that the courts might "turn too quickly to national law". One could therefore argue that the intent of the draftsmen was to ensure the longevity of the Convention in framing Article 9, and with safeguarding its interpretation through Article 7, rather than with the determined effort to give credibility to the lex mercatoria.

There can be little doubt of the validity of Honnold's observations, as he was personally involved in the drafting of the Vienna Sales Convention. However, there can be little doubt as to the intent of the numerous conventions for international commercial arbitration that provide the enforcement of arbitral awards based on the lex mercatoria, as will be considered in the following section.

First, however, the final proposed "source" of the lex mercatoria, arbitral awards, will be considered. It has been argued that there are some very serious impediments to making a "case law" for the lex mercatoria out of arbitral awards. These are, first, that arbitral awards provide specific answers to very specific problems and cannot be expected to elaborate general principles. This is particularly because the disputes before them are decided on the basis of a compromise, generally by arbitral tribunals of three arbitrators, two of which are chosen by the parties themselves, rather than against the concrete principles of justice.  46  Secondly, there is very meagre reporting of the substance of the cases in order to protect the confidentiality of the disputants as well as any trade secrets. Mustill found that only 130 awards of the thousands heard by the ICC from the 1950s and 1960s were published, of which no more than twenty-five were concerned with the lex mercatoria.  47  Thirdly, the extent to which arbitral awards can form a substantive case law depends, as Mustill has pointed out, on one's conception of the nature of the lex mercatoria. He stated:

If the arbitrator's function is simply that of an exponent, then the second arbitrator need do no more than pay appropriate respect to the reasons of his colleague, without being obliged to arrive at the same decisions.... if the first arbitrator has exercised a creative function as a social engineer, his successor can fairly regard him as no more than a part of the self-regulating mechanism of the contract under which he acted, and can thus feel free to exercise the same function, in a different case, under his own contract.  48 

 19. Carbonneau, op. cit., p.14.

 20. See: Goldman, "The Applicable Law: General Principles of Law - the Lex Mercatoria", in J. Lew (ed.), Contemporary Problems in International Arbitration 113 (1987).

 21. The Rt. Hon. Lord Justice Mustill, "The New Lex Mercatoria: The First Twenty-five Years", in Maarten Bos and Ian Brownlie, Liber Amicorum for the Rt. Hon. Lord Wilberforce, Clarendon Press, Oxford, 1987, pp.149-183, at. pp.174-177.

 22. This list is compiled from: Emmanuel Gaillard (ed.), Transnational Rules in International Commercial Arbitration, Institute of International Business Law and Practice, International Chamber of Commerce, Paris, 1993, pp.67-68; Ugo Dreatta, Ralph B. Lake, and Ved. P. Nanda, Breach and Adaptation of International Contracts: An Introduction to the Lex Mercatoria, Butterworths, 1992, esp. p.13; Ole Lando, "The Lex Mercatoria in International Commercial Arbitration", International and Comparative Law Quarterly, Vol.34, 1985, pp.747- 768, esp. pp.748-752; and Mustill, op. cit.

 23. Dreatta, Lake and Nanda, op. cit., pp.13-14.

 24. Texaco Overseas Petroleum and California Asiatic Oil Company v. The Government of the Libyan Arab Republic, 53 ILR 1979. This concept has been rejected by Sonorajah, The Pursuit of Nationalised Property, Martinus Nijhoff, Dordrecht, 1986.

 25. Ibid, p.10.

 26. Lord McNair, "The General Principles of Law Recognised by Civilised Nations", British Yearbook of International Law, Vol.33, 1957, pp.1-19, at p.6..

 27. In Gaillard, op. cit., p.29.

 28. Dreatta, Lake and Nanda, op. cit., p.15.

 29. Mustill, op. cit., p.157.

 30. Mustill, op. cit., p.159; De Ly, op. cit., pp.183-192.

 31. The lead cases on this dictum are well known: Lord Atkin in R. v. International Trustee for the Protection of Bondholders Aktiengesellshaft and Lord Wright in Vita Food Products Inc. V Unus Shipping Co. Also, Dicey, op. cit, Rule 127, sub-rule 1.

 32. Norbert Horn, "Uniformity and Diversity in the Law of International Commercial Contracts", in Norbert Horn and Clive M. Schmitthoff (eds.), The Transnational Law of International Commercial Transactions, Klewer, London, 1982, p.10. Specifically, Horacio A. Grigera Naòn cites Article 804 of the Bolivian Civil Code which mandates that contracts that are to be performed in Bolivia, even if concluded outside the country, are to be governed by Bolivian law. See Naòn, "The UN Convention on Contracts for the International Sale of Goods", in ibid., pp.89-124, at p.98. See also De Ly, op. cit., p.52.

 33. De Ly, op. cit., p.53.

 34. Mustill, op. cit., p.156.

 35. Keith Highet, "The Enigma of the Lex Mercatoria", in Carbonneau, op. cit., pp.99-108, at p.100.

 36. Berman and Kaufmman, op. cit., p.264.

 37. De Ly, op. cit., pp.172-174.

 38. De Ly, op. cit., pp.175-183.

 39. Dreatta, Lake, and Nanda, op. cit., p.15.

 40. See: J. Berman and Felix Dasser, "The 'New' Law Merchant and the 'Old': Sources, Content, and Legitimacy", in Carbonneau, op. cit., pp.21-36; Bernard Audit, "The Vienna Sales Convention and the Lex Mercatoria", in Carbonneau, op. cit., pp.139-160.

 41. United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980) in Indira Carr and Richard Kidner, Statutes and Conventions on International Trade Law, Cavendish Publishing Ltd., London, 1993, p.390.

 42. Audit, op. cit., at p.139 and p.141.

 43. Ibid, p.143.

 44. Ibid, p.153 and p.159.

 45. De Ly, op. cit., p.205.

 46. See Schmitthoff, op. cit.

 47. John Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention, Klewer, London, 1982, p.60.

 48. Ibid, p.60.

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( International Trade/Commercial Law & e-Commerce Monitor )

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