Introduction: Non-state rules in international commercial contracts
The quest for legal certainty
Advancing technology and furthering economic globalisation have intensified international trade. Information technology helps businesses expand their market share without needing to establish a presence in other countries. Yet, whilst technology and a more intricate infrastructure facilitate international trade, there are still barriers to trading abroad. Small and Medium Enterprises (SME) can be reluctant to offer their services/goods across borders; partly because of the risks that a foreign and unfamiliar legal environment brings. Businesses need to be aware of different judicial procedures and regulations and they will be wary of any extra costs they might incur, for instance because contractual liability extends further than in their home country. This disproportionately affects smaller businesses that have fewer financial resources to mitigate these risks.
Legal harmonisation facilitates international trade; if the law is similar in different countries the legal consequences of doing business abroad are more predictable. Of course, commercial and contract law are not the only laws that affect cross-border trade: tax law, company law, and competition law among others also affect businesses. These areas are often more difficult to harmonise than commercial law as they are more closely connected with states’ public policy concerns. Whilst there are harmonisation efforts in these areas the results are (outside of the European Union) more modest.
The harmonisation of international commercial law occurs through international conventions and non-state rules (or soft law). Upon ratification international conventions become part of domestic law. The position of non-statc rules is more diffuse and therefore further analysis is needed to understand how these accumulate legal authority. Non-state rules can be uncodified, such as trade usages and general principles, or they can be codified, such as restatements, model laws, and standard contract terms. They are created through spontaneous usage by the merchant community, or purposefully by (international) organisations.
The aim of this book is to improve understanding of how the legal authority of non-state rules in international commercial contracts can be measured. To this end Part 1 considers the general nature of non-state rules and argues that the most important way that the legal authority of non-state rules can be understood is through their application. As such Part 2 assesses the extent to which the parties to the contract can choose non-state rules as the applicable law of the contract. Outside of arbitration, only a few jurisdictions allow for the application of non-state rules as the governing law, but they can usually be included by reference in addition to a state law. Part 3 then analyses the application of non-state rules other than as the governing law of the contract. This part demonstrates that these rules arc applied in various ways; as a source of domestic law, to interpret the contract or the law, and to fill in gaps in the applicable law.
Uncodified non-state rules (trade usages and general principles of law) are often sources of domestic law and are applied as part of the applicable law. In addition, it is shown that while codified non-state rules (such as restatements of law) usually have no standing as a source of law they are frequently used by courts as accepted international commercial practices and principles to interpret both the contract and the law, especially where there arc gaps or conflicting laws, or to demonstrate that domestic law proposes the same solution as specific non-states rules. This enhances the legitimacy of domestic law as it shows its compatibility with accepted international commercial practices. Non-state rules are also used to demonstrate that domestic law is divergent from the international majoritarian approach; and in this way non-state rules have a potentially important role to play in furthering discussions on the development of domestic law.
Non-state rules play a key role in resolving international contractual disputes and also contribute to the harmonisation of international commercial law. The main focus of Part 3 is on application of non-state rules in state courts. In a way this is most relevant to assessing the legal authority of these rules because of the normative power of courts. By contrast, while arbitration plays a key role in international commerce, one might say that there is less legal authority’ in what is decided (and in the rules used to decide) because they have no normative power and there is no binding precedent. Nevertheless, arbitration is extremely important in international commerce and the various points made above on non-state rules do apply in arbitration just as they apply in litigation. So, this serves to further augment to at least some degree the authoritative role of non-state rules in international commercial law.
The book concludes that non-state rules assume various roles in the contractual relationship with different degrees of legal authority. They are used as contractual rules and as such their authority comes from the contract. They can be used as the governing law of the contract and their authority derives from private international law. They can be considered sources of domestic law and as such their authority comes from that law. They are used to interpret the law and the contract and derive their authority from their position as general principles and practices of international commercial law.
Non-state rules can thus (depending on the situation) be considered contractual rules; normative practices; rules of law (rules which have a normative value but are not law); or (domestic) law. Non-state rules gain in legal authority through their application, and this application can come in various different forms: sometimes as the governing law of the contract, but more routinely for instance as contractual rules, as a source of domestic law, to interpret the applicable law, and to interpret the contract.
The primary contribution of this book lies in providing greater clarity as to the legal authority of non-statc rules. This fills various important gaps. Research on non-statc rules frequently focuses on their application as the governing law, both in litigation and arbitration;1 and whilst this is discussed here, the focus is on what this says about the legal authority of these rules. In addition, this focus on the question of legal authority takes this book beyond the discussion about the governing law of the contract. As indicated above, the book emphasises the various ways in which non-statc rules arc applied even when the non-statc rules are not the governing law of the contract. There is a body of work, which focuses on how non-statc rules shape and influence principles of commercial law and how they contribute to the creation of transnational legal orders.2 There is only a limited focus on the question of the legal authority of non-state rules.3 Other work covers the use of non-statc rules to establish an internationally accepted authoritative commercial law practice against which the authority of domestic law is measured4, how
1 On arbitration sec for instance: ‘Gbenga Bamodu, ‘Exploring the Interrelationships of Transnational Commercial Law ‘the New Lex Mercatoria’ and International Commercial Arbitration’ (1998) 1 African Journal of International and Comparative Law 37
Gabrielle Kaufmann-Kohler, ‘Soft Law in International Arbitration: Codification and Normativity’ (2010) Journal of International Dispute Settlement 1,
Larry A. di Matteo, ‘Soft law and the principle of fair and equitable decision making in international contract arbitration’ (2013) The Chinese Journal of Comparative Law 1,
Michael Pryles, ‘Application of the Lex Mercatoria in International Commercial Arbitration’ (2008) 31 UNSWLJ 319,
On the applicable law see for instance:
David Oser, The Unidroit Principles of International Commercial Contracts: a Governing
Law (Martinus Nijhoff 2008),
Michael Joachim Bonell, ‘The Law Governing International Commercial Contracts and the Actual Role of the UNI DROIT Principles’ (2018) 23 Uniform Law Review 15,
Larry A. DiMatteo, International Contracting: Law and Practice (Wolter Kluwer Law & Business 2013,
Ralf Michaels, ‘Thee Re-statement of Non-State Law: The State, Choice of Law, and the Challenge from Global Legal Pluralism’ (2005) 51 Wayne Law Review 1209, and
Symeon C. Symeonides, ‘Party Autonomy in International Contracts and the Multiple Ways of Slicing the Apple’ (2014) 39 Brooklyn Journal of International Law 1123.
2 See for instance Ralf Michaels ‘The UNIDROIT Principles as Global Background Law’ (2014) 19 Uniform Law Review 643
Terence C. Halliday and Gregory Shaffer (editors), Transnational Legal Orders, (2015 Cambridge University Press).
- 3 See for instance: Nils Jansen, The Making of Legal Authority (2010) Oxford University Press.
- 4 Michael Joachim Bonell and Ole Lando, ‘Future Prospects of the Unification of Contract
Law in Europe and Worldwide’ (2013) 18 Uniform Law Review 17
Larry A. DiMatteo, ‘The Scholarly Response to the Harmonization of International Sales Law’ (2012) 30 Journal of Law 8c Commerce 1
Ralph Michaels, ‘the UNIDROIT Principles as Global Background Law’ (2014) 19 Uniform Law Review 643
Hugh Collins, Cosmopolitanism and Transnational Private Law (2012) 8 European Contract Law Review 311.
privately-made law gains authority despite lack of democratic accountability, how codified non-state rules become part of the lex mercatoria, or how the lex mercatoria develops into sector-specific authoritative legal practices. The analysis in this book contributes to this wider discussion by focusing precisely on the application to measure the legal authority of non-state rules.
Improving understanding as to the legal authority of non-state rules is not only an important contribution in relation to these rules but also adds to our understanding of legal harmonisation. The realisation that different legal regimes form a barrier against international trade has led to the creation of a body of transnational commercial law that either lowers or removes these barriers. Non-state rules are key to this development. They contribute towards creating a truly transnational body of commercial law and towards harmonising the principles underlying international commercial law; and to fully understand this role it is necessary to examine how their legal authority is established. There is a significant amount of literature that analyses legal harmonisation and non-state rules, and this work contributes to this literature by focusing the discussion through the lens of legal authority.
The book also furthers scholarship on the important and perennial issue in commercial law of how to improve certainty and predictability for the benefit of contracting parties. So by improving understanding of the legal authority of non-state rules (in particular in relation to when and how they will be applied) this book can contribute to helping the contracting parties
1
A.M Garro, ‘Rule-Setting by Private Organisations, Standardisation of Contracts and the Harmonisation of International Sales Law’ in Ian F Fletcher, Loukas Mistelis & Marise Cremona (editors) Foundations and Perspectives of International Trade Law (Sweet & Maxwell 2000)
David V. Snyder, ‘Private Lawmaking’ (2003) 64 Ohio State Journal 371
Giinther Teubner, ‘Global Bukowina: Legal Pluralism in the World Society’ in Giinther Teubner (editor), Global Law without a State ( 1997 Brookfield).
2
Klaus Peter Berger, The Creeping Codification of the New Lex Mercatoria 2nd Revised Edition (2010 Wolters Kluwer).
3
Axel Metzger, ‘Transnational Law for Transnational Communities: The Emergence of a
Lex Mercatoria (or Lex Informatica) for International Creative Communities’ (2012) 3 J Intell Prop Info Tech & Elec Com L 361
Leonardo V. P. de Oliveira, Lex sportiva as the contractual governing law (2017) 17 International Sports Law Journal 101.
4
See for instance: Bernardo M. Cremades & Steven L. Plehn, ‘The New Lex Mercatoria and the Harmonization of the laws of International Commercial Transactions’ (1983-1984) 2 Boston University International Law Journal 317,
Larry A DiMatteo, ‘The Scholarly Response to the Harmonization of International Sales Law’ (2012) 30 Journal of Law & Commerce 1 and Ian F Fletcher, Loukas Mistelis & Marise Cremona (editors) Foundations and Perspectives of International Trade Law (Sweet
- 6 Maxwell 2000).
- 5
See for instance: Kermit Roosevelt HI, ‘Certainty vs. Flexibility in the Conflict of laws’ (2018) Public Law and Legal Theory Research Paper Series Research Paper No.18-40,
7 and Ingeborg Schweitzer, ‘Who Needs a Uniform Contract Law, and why?’ (2013) 58 Villanova Law Review 723.
to manage risks, by reference to a clearer understanding as to when particular non-statc rules may apply.
The rest of this introductory chapter defines first what an international contract is; discusses several organisations that play a key role in the development of non-state rules; examines the main categories of non-statc rules; and finishes by mapping out the overall structure of the remainder of the book.
