Codified non- state rules as a source of law

International organisations, trade associations, and private groups create codified non-state rules. This can be with the goal of harmonising international commercial law and providing security and predictability to international transactions.

Apart from being codified, the crucial difference between uncodified non-state rules and codified non-state rules is that the legal position of the first is clearer. Trade usages and general principles of law are recognised in the domestic legal order as sources of law. They thus have a direct standing under the law. This is not the case for codified non-state rules. They are usually not recognised as a source of domestic law. Their status as a source of law often comes from their association or assimilation with uncodified non-state rules. That is to the say the codified rule is seen as a reflection or expression of a general principle of law or a trade usage. They can also get their authority from the contract (if they arc incorporated by reference or used as the applicable law) or from their position as legal doctrine/scholarship. This section explores the different types of codified non-state rules.

Upon adoption model laws become part of domestic law. The model law might be changed during the adoption. Model laws might be transferred almost one on one or they could merely serve as an inspiration for the drafters of the domestic law. The adopted model law is now part of the domestic law of the state. The original model law continues to exist in parallel to the state. The question is then what the legal authority of the model law is. Model laws arc aimed at legislators. This makes the provisions less suitable as contractual rules, but this is not an intrinsic reason why private parties could not include a model law in their contract by reference. For instance, the parties could state that electronic commerce in the contract should be defined as per the relevant UNCITRAL Model Law.

Their legal authority beyond contractual rules is more difficult to ascertain. The purpose of model laws is to convince legislators to adopt their provisions. Their advocacy is aimed at the state and not at the contracting parties. As they arc aimed at legislators, they arc unlikely to be used as contractual rules. They are therefore unlikely to develop into trade practices and usages. If the model law has been adopted by many legislations this could increase the persuasive value of the provisions of the model law. The principles of the model law could become accepted international commercial law principles. This could ensure a development of some of the provisions of the model law into international commercial law doctrine or general principles of international commercial law.

Model contracts and model terms are aimed at the parties to the contract. Businesses use them as models or incorporate parts in their contract. They serve as contractual rules and derive their legal authority from the contract. Model contract terms could develop into trade usages if they are used frequently and consistently. They then take on a legal value beyond that of a contractual rule, as their application would not be dependent upon being included in the contract. They would be treated as implied terms of the contract.

The two most prominent sets of contract terms arc the Incoterms and the UCP. The Incoterms are based upon pre-existing trade terms. Trade terms are interpreted differently in different ports and states.^[1] The ICC chose the most prevalent meaning, and this can differ from local interpretations.

The Incoterms are firstly contractual rules. They will apply when contracted into. Some consider them to be trade usages. In 1968 Schmitthoff wrote that they are usages, which have to be contracted in to. In 1980 Ramberg described the Incoterms as usages. Case law is diffuse; there is some support for the claim that they are trade usages but also case law that

The roles of non-state rules 75 confirms their status as contractual rules.^[2] The majority opinion is that the Incoterms are contractual rules. The European Court of Justice affirmed that usages such as Incoterms have the status of a contractual term and should be applied as part of the contract in the same way as all relevant terms, including those that arc used in ‘international commercial usage.*⁰

Not all Incoterms are equally established. An older more established term like FOB is more likely to be considered a trade usage than a newer term such as DDF. Incoterms are seen as trade usages when parties include a trade term such as FOB in their contract without any specific reference to the Incoterms and the court decides that the trade term should be interpreted in accordance with the Incoterms. The Incoterms arc in that case the standard for interpreting trade terms and take on the role of trade usages. They can also be considered usages if the parties describe in their contract how the transfer of risk takes place without reference to a trade term, but the court interprets this transfer of risk clause in accordance with the corresponding Incoterm.

The UCP are contractual rules. They are voluntary in name but in practice they arc usually not as getting a documentary credit with an established bank is almost impossible without using the UCP. The question is what this says about the legal authority of the UCP as a source of law. Dalhuiscn believes the UCP to be customary law. Already in 1968 Schmitthoff saw the UCP as being in a transitional stage from usage to custom. There is thus support for considering them as more than contractual rules. On the other hand, it can be argued that the UCP cannot be seen as custom or trade usages because the provisions tend to be biased in favour of the bank. Although merchants use them frequently they do this because they cannot get a documentary credit without including them and not because they feel any moral obligation about adhering to the UCP. They are thus not custom as a sense of obligation is required for a usage to be custom. Could they be tradeusages? They are used consistently and regularly, so based on observation it could be concluded that they are trade usages. They are applied more consistently than the Incoterms and there is thus a basis to consider them trade usages.^[3] Yet, it might be asked whether merchants would adhere to them if they were not in the contract or whether they would choose to contract out of them if possible.

The UCP are considered contractual terms in most jurisdictions. The first article of the UCP states that they are applicable when they arc included in the contract and therefore they present themselves as contractual rules. Although their usage is pervasive the unequal relationship between the bank and the merchant would prevent them from being considered customary law. It is also questionable whether they are trade usages. They could be considered as trade usages between banks which use them voluntarily and have considerable influence on the development of the UCP. Whether they should be considered trade usages between banks and third parties is more questionable. Businesses do not use the UCP spontaneously. For this reason, the UCP are rightly more contractual rules than trade usages, despite the high frequency of usage.

Guides and opinions arc a diffuse category of non-state rules that serves to unite those rules that do not fall under any of the other categories. These include guidelines, commentary, legal opinions etc. The origins of these documents arc international organisations, trade associations, study groups, think thanks, and other private initiatives. These documents do not serve as sources of law but can have persuasive value and contribute to the development of accepted international commercial practices and doctrine.

An example is the CISG Advisory Council. This is an independent group that publishes legal opinions on the interpretation of the CISG, based on case law and on the legislative history of the CISG. These opinions have no direct legal standing but gain persuasive authority if applied by courts to interpret the CISG. They could therefore serve towards developing the principles underlying the CISG and the concrete rules of how the CISG should be interpreted.

International organisations do substantive work in this area. The ICC publishes handbooks, best practice guides, and other similar type instruments.⁸⁹ UNCITRAL also publishes these types of documents as well as for instance case law digests.⁹⁰ UNIDROIT publishes instruments in this category such as their legal guide to contract farming.⁹¹ Trade associations produce legal opinions and best practice guides.⁹²

Guides and opinions arc aimed at legislators, legal professionals, and the business community. Some of these can be used during contractual negotiations as guidelines. Others could be used as contractual rules. They would therefore derive their authority from the contract.

Guides and opinions arc used by courts to help interpret international and transnational commercial law. They can be considered as contributing to the formation of legal doctrine if they are cited frequently by courts, legislators, and policy makers. Their legal value would partly be determined by the institution (a document produced by an international organisation would have stronger persuasive value than that written by a private individual.) Furthermore, the origins of the instrument arc important. For instance, the UNCITRAL case law digests are based on existing case law. This might be foreign case law or arbitral awards and thus not a source of law in the forum,

89 Examples are:

Policy and Business Practices: Developing Neutral Legal Standards for International Contracts

http://store.iccwbo.org/contcnt/uploaded/pdf/Developing_Neutral_Legal_

Standards_Int_Contracts.pdf

ICC Principles to Facilitate Commercial Negotiation

http://store.iccwbo.Org/t/ICC-Principles-to-Facilitate-Commercial-Negotiation.

90 Examples are:

UNCITRAL Legal Guide on International Countertrade Transactions (1992)

http://www.uncitral.0rg/u ncit ral/en/uncitral_tcxts/sale_goods/1992Guide_ countcrtrade.html

Promoting confidence in electronic commerce: legal issues on international use of electronic authentication and signature methods (2007)

http://www.uncitral.org/pdf/english/texts/electcom/08-55698_Ebook.pdf

UNCITRAL Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods (2012)

http://www.uncitral.org/pdf/english/clout/CISG-digest-2012-e.pdf

UNCITRAL 2012 Digest of Case Law on the Model Law on International Commercial Arbitration

http://www.uncitral.org/uncitral/en/case_law/digests/mal2012.html.

91 Examples are:

Contract Farming Legal Guide

http://www.unidroit.org/instrumcnts/contract-farming/legal-gtiide

Guide to International Master Franchise Arrangements (Second Edition 2007)

http://www.unidroit.org/guide-to-international-master-franchisc-second-cdition.

92 Examples are:

ISDA: opinions, and other documentation materials:

http://www2.isda.org/functional-areas/legal-and-documentation/

GAFTA: Guidelines for Appropriations, letters of credits, insurance terms

http://www.gafta.com/Contracts-2016.

but it would carry persuasive value, nonetheless. A best practice guide that reflects only the author’s opinion would be less persuasive. If that best practice guide is based on long standing commercial practices, then it might be used as evidence of these practices and would have a stronger position. The dissimilar origins and authors make it difficult to pinpoint the legal authority of this category of codified non-state rules. The two main points of reference would be: their inclusion in the contract and their stance as legal doctrine/ scholarship in the tradition of civil law.

• [1] Hans van Houtte, The Laws of International Trade (Sweet & Maxwell 1995),149. 2 Ibid, 150. 3 Filip de Ly, International Business Law and Lex Mercatoria (T.M.C Asser Instituut 1992) 173. 4 Clive M Schmitthoff, 'The Unification or Harmonisation of Law by Means of Standard Contracts and General Conditions’ (1986) 17 International & Comparative Law Quarterly 551,554. 5 Jan Ramberg, ‘Incoterms 1980’ in Norbert Horn and Clive M Schmitthoff (editors), The Transnational Law of International Commercial Transactions (Kluwer 1982) 151.
• [2] Filip de Ly, International Business Law and Lex Mercatoria (T.M.C Asser Instituut 1992) 173. 2 Ibid, 174 And Anne-Katherine Drettmann, ‘Would English law on trade usages benefit from adopting a more formal approach such as seen in other jurisdictions as well as in international conventions?’ (2009) http://www.cisg.law.pace.edu/cisg/biblio/drettmann.html. 3 Electrosteel Europe SA v Edil Centro SpA (2011) Case C-87/10 ECLI:EU:C:2011:375. 4 Jan H Dalhuisen, On Transnational and Comparative Commercial, Financial and Trade Law Volume I, - The New Lex Mercatoria and its Sources (Hart Publishing 2001) 160. 5 Clive M Schmitthoff, 'The Unification or Harmonisation of Law by Means of Standard Contracts and General Conditions’ (1986) 17 International & Comparative Law Quarterly 551,554. 6 Norbert Horn, ‘The Use ofTransnational Law in the Contract Law of International Trade and Finance’ in Klaus Peter Berger (Editor), The Practice ofTransnational Law (Kluwer Law International 2001) 79. 7 Ibid.
• [3] Filip de Ly, International Business Law and Lex Mercatoria (T.M.C Asser Instituut 1992) 182. 2 Olugbenga Bamodu, ‘Extra-national Legal Principles in the Global Village: a Conceptual Examination ofTransnational Law’, (2001) 4 International Arbitration Law Review 6,14. 3 UCP 600 -Article 1: Application of UCP. The Uniform Customs and Practice for Documentary Credits, 2007 Revision, ICC Publication no. 600 (“UCP”) are rules that apply to any documentary credit (“credit”) (including, to the extent to which they may be applicable, any standby letter of credit) when the text of the credit expressly indicates that it is subject these rules. 4 CISG Advisory Council: http://www.cisgac.com/ An example of a CISG best practice guide would be: John P McMahon, Applying the CISG: Guides for Business Managers and Counsel, (May 2010) http://www.cisg.law.pace.edu/cisg/guides.html.