Institutionalization of Lex Mercatoria: the key to a predictable legal framework

2017-2018 International Commercial Law (PRI 4002) Research Paper

i6181386

Nicole Kornet

3983

Institutionalization of Lex Mercatoria: the key to a predictable legal framework.

Introduction.

“Has the lex mercatoria stolen the international commercial scene, pushing national laws into the wings?”^[1]. When Lord Mustill was asked this question his “no” was followed by “...at least not yet”.

My investigation starts from parties’ “freedom of contract”, namely the possibility granted by the vast majority of countries to design private normative regimes.^[2]

Parties often use this possibility to select, as the governing law of the contract, an a-national law which they deem to be more suitable to their particular trade or business in general. Choosing Lex Mercatoria, namely trade customs and practices, as the applicable law, may prove to have several advantages for merchants. Indeed, its first benefit is neutrality: Lex Mercatoria “may operate more fairly, because it is not tied to either trading partner's home law, nor to any single third country's law”. Consequently, it prevents domestic legislations which are more favourable to national importers or exporters.^[3] Furthermore, and apart from lower transaction costs, another advantage lies in the reference to arbitral panels for the settlement of contract disputes. When parties have their disputes governed by arbitrators applying Lex Mercatoria, they avoid inappropriateness of domestic courts with regards to expertise, language capabilities, costs, and length of procedure.^[4]

These advantages have led to a greater reference to a-national systems (Lex Mercatoria) as the law governing the contract, so that many scholars argue about the evolution of a “New Lex Mercatoria” as a global private regime for international commerce.

In this paper I will present the legal debate regarding the existence of a Law Merchant autonomous and independent from the State and its institutions. In doing so, I will overcome the traditional dichotomy of State law and a-national law in favour of a third approach. However, also the latter could be questioned by referring to the reality of standard contracts elaborated by private commercial institutions.

In the second part, I will focus on the capability of Lex Mercatoria to behave as a proper law. In particular, I argue that a consistent legal order requires provability and predictability. In this respect, I consider codification of trade customs and institutionalization of arbitration as the key to harmonize Lex Mercatoria and render it a predictable legal framework from which arbitrators and merchants can draw.

The debated existence of the New Lex Mercatoria as a legal order.

Parties’ autonomy to choose, as the governing law of the contract, an a-national system based on transnational commercial norms, has sparked a heated debate about the existence and legal validity of a third category of law other than national and international law.^[5] In particular, it is controversial whether this set of “supranational social norms generated from transnational mercantile practice”^[6] is totally autonomous and independent from the State, its law and institutions. It is noteworthy to mention that for some authors the real nature of the New Lex Mercatoria is outside the dichotomy of State law and a-national law. Rather than a law without a State, it should be conceived as a law “beyond” the State which presents features of both sides.^[7] 

Those in favour of the autonomous legal order (“Mercatorists”), stemming from commercial practices, standardized contracts, law-making activity of global economic associations and the awards of international arbitration courts, justify its independence from the State’s sovereignty on several grounds.

One argument is based on the assumption that the domain of Lex Mercatoria consists of customary law. As Goldman stated: “The criterion for determining the ambit of lex mercatoria that I would follow thus […] reside(s) […] in its origin and its customary, and thus spontaneous nature”.^[8]

However, the biggest flaw of this approach lies in the lacking evidence of a long-established practice (consuetudo lunga) and of the opinio iuris at the global level.^[9] 

Another attempt to identify transnational commercial norms as a global law without a State builds on institutional theories of the Italian and French doctrine. According to these, global merchants have been able to create a formal organization within their community, provided with its own disciplinary rules and sanctions, albeit different from the ordinary sanctions. Although opponents of this approach view it as “antiquated”^[10], nowadays many international organizations, such as the United Nations Economic Commission for Europe (ECE), Federation International des Ingenieurs Conseils (FIDIC), and the Grain and Feed Trade Association (GAFTA), in drafting their standardized self-regulatory contracts usually envisage that failure to abide by an arbitration award results in blacklisting and exclusion from the trade.^[11] 

These international entities help us move to the next theory on which independence is based. Indeed, other authors have developed the concept of “contrat sans loi” or “self-regulatory contract”, the foundation of which is to be found in parties’ autonomy, granted by national law, to choose non-national law as the governing law of the contract. The above-mentioned institutions create the a-national law that applies to their members by writing standardized contracts. However, it is argued that “freedom of contract” granted by states entitles merchants to a choice among existing national laws and “in no way includes the permission to create a new law outside any national legal order”^[12].

On the other hand, antagonists of the New Lex Mercatoria deem it to be a fiction, since a notion of law outside the state is simply unthinkable as well as illegitimate.

They rely on positivist theories according to which a rule is legally valid only if commanded by the sovereign (Austin), therefore it must possess certain characteristics: namely to be normative, institutionalized, and coercive.^[13]

In particular, they contend that transnational commercial norms, either in the form of commercial customs or standardized contracts, lack binding force as only an act of the sovereign can transform them into law. Contracts and associations only produce private orders without authorization from and control by the state.

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