Measuring the legal authority of non-state rules
If a source of law is determined by the origin of the source, the process through which it was established, the reason why it came into existence, and the substantive result then to understand how non-state rules acquire legal authority, the same four lenses could be applied. The four lenses that measure whether a rule is a source of law in domestic law can be used to determine whether non-state rules have the quality of a source of law. This alone is not enough to measure the legal authority of non-state rules, but it forms a starting point to establishing this authority.
Non-state rules can have legal authority within the state and within the transnational sphere. Understanding the legal authority in the domestic sphere is straightforward. It would be understood and measured in the same
Defining non-state rules 33 way as any state law is. So, if trade usages are considered a source of domestic law then they get their authority from that recognition. This would not differ from any other law. More challenging is to understand the legal authority of non-statc rules beyond the state.
First, it is important to understand that the international business community consists of different stakeholders such as merchants, legal professionals, and arbitrators. There is no final arbiter whereas the state often has that ultimate authority in an instrument (constitution) and institutions (the national government and the courts.)
The first criterion is thus origin. The legislative authority of state law is there from the start; the political process from which it is developed empowers the rule as law. The legislative authority of non-statc rules is always posteriori; the rule comes into existence first and through subsequent usage and application it can achieve authority.[1]
If the law receives its legitimacy from the forum, which initiated or sanctioned it, then the same would hold true for non-state rules. Non-statc rules are transnational or international in origin. Their origin lies in international organisations, trade associations, and the practices between merchants. They do not emerge from the nation state and they exist in parallel with the state. These same entities that originated the rules can (partly) affirm their legitimacy as sources of law.
Non-state rules can have an organisational or customary origin. They can thus be deliberately created by organisations or emerge through usage by the business community. The standing of the organisation could help determine the legitimacy of the rule. Some institutions like UNIDROIT have broad international support that gives them legitimacy. Trade associations might not have that same international recognition, but they have the support of (parts of) the business community. Codified non-state rules represent the commitment of the scholars and the institutions promulgating these rules. Whereas trade associations are suspected of acting mainly in their own interests, international organisations and groups of scholars are considered neutral, serving legal harmonisation for principled reasons, which adds to the perception of their authority.
Yet, the support of the business community also gives legitimacy to rules, which serve that same community. The Incoterms, the finance contract terms of the ICC (such as the UCP600 and the Uniform Rules for Demand Guarantee (URDG)), and the contract terms emitted by trade associations are widely used in the business community. They are used far more frequently than the UPICC and the PECL for instance. These standard terms are drafted by organisations that represent the business community. Frequency of usage is also explained by the fact that these contract terms are intended for specificcontracts (such as documentary credits) or for specific parts of the contracts (such as passage of risk). Their smaller scope means that the effect of including these in the contract is more predictable than using a restatement of law as the governing law.[2]
Other non-state rules are private initiatives which are supported by legal professionals and the scholarly community but do not have the same institutional support. This diminishes the legal authority they could lay claim too, as the support of an institution adds legitimacy to the instrument because of its perceived transcendence. It is more than the work of a single author or a group of authors, but it is impersonal and bypasses the individual. Private initiatives need to emphasise professional excellence and neutrality to encourage usage, which in turn can add to their legal authority.
The second lens ties in with the first one: the process through which the rule came into existence. Codified non-state rules arc purposefully drafted. This can either be through trade associations in which stakeholders have an important say in how the rules should be shaped and where they arc accepted in accordance with the rules of the association, or it can be through an international organisation where they arc drafted by experts and approved by the organisation. It can also be a private initiative whereby a group of individuals draft the non-state rules. Merchants create uncodified non-state rules through regular and consistent practice of certain usages.
The third lens is the reason why the instrument came into existence. International organisations and trade associations will justify the choices that they make on why they are creating a certain instrument. This could be to save the international business community money, to solve confusion between existing terms, which have different interpretations, to lower barriers to international contracting, to provide rules into an international area in which there are none, or to modernise existing usages. Of course, for uncodified non-state rules there arc no formal justifications. They come into
Defining non-state rules 35 existence because merchants start using them (trade usages) or courts start applying them (general legal principles.) The users deem that these arc practices and principles that are beneficial for international commerce.
The fourth lens is the content of the instrument. It should not be the origin of the rule, which characterizes its legal value, but its substance.[3] The authority of state law comes from the legislative force that enacts it; the content of the law is of secondary importance. It is not binding because of the rationality of its arguments but because it is the result of a binding political process. On the other hand, non-statc rules derive their authority not from the authoritative force but from the rationality behind the argument: non ratione imperii, sed imperio rationis. The argument has to persuade the users. Courts can refer to legal analyses that consider and comment on the specific rule. It would be difficult to decide whose opinions should carry the most value in this determination. Arbitrators? Judges? Scholars? Merchants? Lawyers? This is ambiguous.
The above four lenses: origin, process, reason, and content can thus help unpack the nature of non-statc rules and begin to determine their legal authority. This forms the start to the process of understanding the legal position of non-statc rules. Whilst this first step is crucial, these lenses also tall short of measuring the legal authority of these rules in the transnational sphere. The reason is that within the state it is the institutional framework that legitimates the laws. The procedures ensure accountability from the state. Legal procedures immediately confer legitimacy on the laws they create. Without these procedures the law functions to enhance the arbitrary powers of the state without any political accountability. This is not the same for the processes through which non-statc rules are created. The organisations and people that created the rules cannot give them legitimacy. There needs to be an outside factor that legitimizes them This institutional framework does not exist in the transnational sphere but there are major stakeholders. There are first the institutions, international organisations, and trade associations. The discussion above on origin already discussed how these contribute to establishing that legal authority. The second group is businesses. The business community creates rules (either through spontaneous usage or trade associations) and more importantly uses these rules. The final major players arc the formal dispute resolution mechanisms: arbitral tribunals and courts. These recognise the legal authority of these rules through applying them in disputes.
Thus, in addition to the four lenses (origin, procedure, reason, and substance) that are used to determine whether something can be considered a source of law, the second step is to understand how we can measure the legal authority of non-statc rules in the transnational sphere, where two additional issues are key: support (from the business community' and legal professionals);
and (more generally but also indicative of support by the business legal worlds) application (by courts and tribunals).
The first issue to understand is how support can be determined. The support of the business community and other stakeholders such as legal professionals can partly be understood through perception and use of non-state rules. It is not just the intrinsic quality of a norm that defines whether something is law, but how it is perceived by the community.[4] The drafters of an instrument can present and position this in such a way that there is a perceived legal authority to it from the start which in turn engenders further support and usage. Law has a ‘generally perceived legitimate authority ' by which is meant what the average citizens believes to be law and what they adhere to because they believe this to be morally right. People, institutions and states recognise the authority of tradition, the authority of expertise, and the authority of moral claims. Creating a link between non-state rules and existing law and principles can enhance the legitimacy of the former. Claiming an instrument is based on existing legal principles and/or trade usages shows that non-state rules fit into the greater legal framework, that they are not newly invented, but are a continuation of an older tradition. This creates support from the business community that already uses (and even trusts) those existing principles and trade usages.
On the other hand, by juxtaposing itself as being different from domestic law non-state rules can also gain legitimacy from users. If non-state rules are not different in form and procedure from domestic law, then they no longer represent an alternative option and there is no reason why the parties to the contract should favour them over state law. The attractiveness of non-state rules lies in providing efficiency, flexibility, and clarity. The rules are a product of the market and find a balance between optimising a just solution and the cost of that solution (both in terms of time and money), whereby state laws are not concerned with procedural costs and finding that balance between costs and administering justice. The differences between non-state rules and state law thus contribute to creating business support for non-state rules.
To enhance perception the form in which something is presented is important. If an instrument presents itself as authoritative then this helps it being perceived as authoritative. The document should in appearance be authoritative, coherent, and easy to apply, and it should mimic legal codifications.
For instance, die commentary on the UPICC does not justify the choices the drafters made, it is an explanation of the rules and they do not reveal which part of the Principles are descriptive of the current majoritarian approach and which part is prescriptive and the commentary presents the UPICC as the law as it ought to be.[5] The UPICC thus present themselves in authoritative fashion. Legal authority resides where the participants in the legal process believe it resides, if non-statc rules are perceived to have authority then they have authority
The next step is to establish how the support of the instrument can be measured in practice. This is not necessarily easy. The business world is heterogenous, private, and, fragmentary. One step is how non-statc rules are perceived by other organisations that have legitimacy, cither because they arctrade associations or established international organisations. For instance, the International Trade Centre’s Model Contract for the International Commercial Sale of Goods states that: ‘Questions relating to this contract that are not settled by the provisions contained in the contract shall be governed by the United Nations Convention on Contracts for the International Sale of Goods (...). Questions not covered by the CISG shall be governed by the UNIDROIT Principles of International Commercial Contracts UNCITRAL lists
a number of instruments on their website which they did not elaborate, but which they do endorse. The other side is true as well. If the business community deliberately excludes an instrument, then this shows a lack of support. Model contracts developed by trade associations regularly exclude the application of international conventions. The CISG is regularly excluded from international contracts, although the exact extent is unclear because there is no comprehensive data available. Some of the reasons are lack of familiarity with the CISG and a positive bias towards domestic law. Such an exclusion, shows a lack of support in the business community as they see no advantage to using the rules.
The authority of legal texts is determined from within the legal system by the participants of that system.[6] These participants assign authority to the texts with how they use these and how they interpret them. The law is not stagnant, the law needs interpretation, and there arc gaps in the law. Legal professionals, including lawyers and judges therefore need to advance the law, and they partly determine what the law is and how it is used. To do so they can have recourse to non-state rules, and this usage contributes to their legitimacy. After all, legal professionals make the choice of which arguments to use and which sources they base these arguments on. It is not enough for a text to declare itself an authority (like the UPICC and PECL do in their pre-amble) but also for it to be used as such: ‘Indeed the corpus iuris did not become the legal basis for the ius ccommune because an Emperor or a Prince had declared it binding, but for the only reason that learned lawyers used it as the standard textual reference within their legal discourse, first in Italy and later in most other European countries'™ When legal professionals decide to use a specific rule they add to its legitimacy.
The above gives some indication on how support can thus be understood through perception and usage, but it is also clear that it is difficult to measure as there is only limited data available. It is unknown how often businesses use non-state rules. We know that trade associations (which are supported by businesses) create them and that trade usages play a prominent role in certain trades (especially commodity trades.) It is more difficult to measure how often non-state rules are included in contracts (no reliable data exists on this.)
There is one key way that usage of non-state rules can be gauged: this is through their application by courts and tribunals. Application can measure the support and perception of non-state rules in the international business community and among legal professionals. The difficulty’ lies in the fact that non-state rules are applied more frequently in arbitration but that as arbitral awards are usually not published the exact extent of application is not known. If non-state rules are applied at the request of the parties, this helps to understand the level of support these rules have among the business community. If non-state rules are applied without inclusion in the contract this contributes to understanding their legal authority beyond contractual rules.
Application cannot only help gain a better understanding of the perception and usage of non-state rules, but it also influences their legitimacy and legal authority. The legislative authority of state law is there from the start; the political process through which it is developed empowers the text as law. Non-state rules acquire legitimacy’ and legal authority posteriori, after they have been developed. Partly through their usage and support by' the
Defining non-state rules 39 community and partly through application and thus recognition by courts and arbitral tribunals. If they are applied by courts, then they become more than voluntary guidelines and gain authoritative force.
Conclusion: understanding non-state rules
This chapter examined first what non-state rules are and why they cannot be equated with the lex mercatoria. Whilst the two are not the same they are linked. The lex mercatoria consists of those non-state rules, which have a customary and uncodified origin. There arc multiple theories on what the (new) lex mercatoria is. The most appropriate theory is to define the lex mercatoria along the same characteristics as the medieval lex mercatoria. This means that the lex mercatoria is unwritten and consists of those usages, practices, and principles developed within the merchant community.
Non-state rules, is a wider concept and includes codified rules as well as those rules whose origins arc not strongly linked to the merchant community. They are defined as those legal norms that aim to regulate international commerce and that have been weakened along one or more of the dimensions of obligation, precision, and delegation following Abbot and Snidal’s theory.
After establishing what non-state rules are, the second half of the chapter began to develop a picture of how the legal authority of non-state rules can be understood: the core issue for this book. It discussed how sources of law are seen through four lenses: origin, procedure, reason, and substance. However, these lenses are not enough to understand whether a rule is a voluntary guideline or whether it has legal force. For that it is necessary to understand the framework that can give it legitimacy. That legitimacy and legal authority exists in the domestic sphere and in the transnational sphere. The legal authority within the domestic sphere comes from the state and by extension the state’s institutions, including its courts. Legal authority in the transnational sphere can be measured through how non-state rules are approached by the key stakeholders: the business community, legal professionals, arbitral tribunals, and courts. It is necessary to understand the support non-state rules have from these stakeholders through perception, usage, and application. The latter is key, because if they are applied by courts they become more than voluntary guidelines, they now create obligations on the parties and thus have a form of legal authority.
Following this discussion of the definition of non-state rules and an initial exploration of how their legal authority can be measured, the next chapter approaches non-state rules from the perspective of legal harmonisation. Non-state rules play a key role in the harmonisation of international commercial law and their legal authority cannot be truly understood without exploring this role.
1
Kenneth W Abbott and Duncan Snidal 'Hard and Soft Law in International Governance’ (2000) 54 International Organization 421.
- [1] Roy Goode, 'Usage and Its Reception in Transnational Commercial Law’ (1997) 46 International & Comparative Law Quarterly 3. 2 Ibid. 3 Nils Jansen, The Making of Lejjal Authority Oxford University Press) 41.
- [2] Henry Deed Gabriel, ‘the Use ofSoft Law in the Creation of Legal Norms in International Commercial Law: How Successful Has it Been?’ (2019) 40 Michigan Journal of International Law 413,426. 2 It is estimated that the Aircraft Protocol to the Cape Town Convention saves the industry $4 billion yearly in borrowing cost (see: Roy Goode, ‘Contract and Commercial Law: The Logic and Limits of Harmonisation’ (2003) 7 Electronic Journal of Comparative Law). 3 The Incoterms were drafted out of pre-existing trade terms which were interpreted differently depending on the port. 4 The UNIDROIT Principles were designed to create a neutral law of the contract. See for instance: Michael Joachim Bonell, An International Restatement of Contract Law: the UNIDROIT Principles of International Commercial Contracts (2nd edition, Transnational Publishers 1997). 5 For instance, the early 2011' century Warsaw Convention on carriage by air (see: Alexander N Sack, ‘International Unification of Private Law Rules on Air Transportation and the Warsaw Convention’ (1933) 4 Air Law Review 345). 6 The UCP600 were created out of existing banking practises with the aim to modernise these to be more fit for 20lh century banking practices (see for instance: Hang Yen Low, UCP 600: the new rules on documentary compliance (2010) 52 International Journal of Law and Management 193.
- [3] David Oser, The Unidroit Principles of International Commercial Contracts: A Governing Law (Martinus Nijhoff 2008) 120. 2 Nils Jansen, The Making of Legal Authority (2010 Oxford University Press) 86. 3 Jan Klabbers, the Undesirability of Soft Law (1998) 67 Nordic Journal of International Law 381, 387/391.
- [4] Thomas Schultz, Transnational Legality: Stateless Law and International Arbitration (Oxford University Press 2014) 16/17. 2 Ibid, 30. 3 Rodney Bruce Hall & Thomas J Biersteker, ‘The Emergence of Private Authority in the International System’ in Rodney Bruce Hall & Thomas J Biersteker (editors) 'The Emergence of Private Authority in Global Governance (CUP 2002) 5. 4 Ralf Michaels, ‘The True Lex Mercatoria: Law Beyond the State’ (2007) 14 Ind J Global Legal Stud 447,462. 5 Gillian K Hadfield, Privatizing Commercial Law: Lessons from the Middle and Digital Ages , (2000) Working Paper No. 195,40/41. 6 Nils Jansen, The Making of Legal Authority (2010 Oxford University Press) 106.
- [5] Ibid, 70. 2 The International Trade Centre is a subsidiary organisation of the WTO and UNCTAD (United Nations Conference on Trade and Development). Its mission is to ‘w foster inclusive and sustainable growth and development through trade and international business development.'' http://www.intracen.org/itc/about/mission-and-objectives/ International Trade Centre, Model Contracts for Small Firms, Model Contract for International Commercial Sales of Goods, http://www.intracen.org/uploadedFiles/intracenorg/Content/Exporters/ Export ing_Better/Templates_of_contracts/3%20International%20Commercial%20 Sale%20of%20Goods.pdf. 3 Examples are The Hague Principles on Choice of Law, the UNIDROIT Principles in International Commercial Contracts, UCP, Incoterms, and the International Standby Practices. http://www.uncitral.org/uncitral/en/other_organizations_texts.html. 4 See for example GAFTA model contract, clause 28 http://www.gafta.com/write/MediaUploads/Contracts/2016/l_2016.pdf NAEGA model contract, clause 27 http://naega.org/images/naegacontract.pdf. 5 Ingeborg Schwenzer and Pascal Hachem, ‘the CISG- Successes and Pitfalls’ (2009) 57 The American Journal of Comparative Law 457,463. 6 Charles R Calleros, ‘Towards Harmonization and Certainty in Choice of Law Rules for International Contracts: Should the U.S. Adopt the Equivalent of Rome I?’ (2010) 28 Wisconsin International Law Journal 639, 642.
- [6] Nils Jansen, The Making of Legal Authority (2010 Oxford University Press) 20. 2 Ibid, 44. 3 Ibid, 28. 4 Ibid, 41.
