The application of codified non-states rules as lex mercatoria
Before the court can apply the lex mercatoria it needs to decide the substance of the lex mercatoria; that is to say which legal norms and concrete rules it should apply to solve the dispute. There is no consensus on this, and this is largely due to the difficulties of pinpointing the substance of the lex mercatoria. According to Selden (1995), ‘For problems with determining the existence of any purported principle of lex mercatoria, just look at its sources: practices followed since time immemorial, or at least since the Roman ins gentium; ancient cases in dusty tomes; writings of erudite scholars who passed away about the time the steam engine was revolutionising industry. There is also the current literature in law reviews and academic publications, in a variety of languages. As a collection of commercial practices, the content of lex mercatoria has not been discoverable in any one single place. Furthermore, those partial listings that did exist were not found in the normal places to which judges and arbitrators (and lawyers) turn. The occasional law review article is no substitute for a code or, in common law jurisdictions, line of judicial opinions.’[1]
Furthermore, there is a lack of available case law given that the lex mercatoria does not come up in state courts frequently and arbitral awards are usually not published or at least not in their entirety. If the court/tribunal applies the lex mercatoria it would thus need to decide what the lex mercatoria is, what its content is, and most importantly what concrete rules it should apply.
It is difficult for the court/tribunal to apply the lex mercatoria because it cannot be found in a single place. The amount of scholarly writing on this topic is significant and it is difficult to know which works should be prioritised. Courts could look at guidelines published by international organisations, at standard contract terms, and at websites and databases produced by international organisations, but this is a confusing and massive collection of information. For a court or tribunal which is limited by restraints of time and budget, it is a daunting task to come up with any concrete rules using these elements.
Case law can shed light on what the principles of the lex mercatoria are. For instance, ICC Case No 8365 held that the lex mercatoria consists of principles such as (1) pacta sunt servanda (2) good faith and (3) favour valid-itatis. Such case law is helpful in interpreting the contract and the law. It is less use fill in finding concrete rules to apply to solve the dispute.
Courts have a tendency to rely on familiar legal systems and the lex fori to guide the interpretation of the lex mercatoria. This ‘homeward trend’ is also noted with the application of foreign law and the CISG. This of course defeats the purpose of applying non-state rules. After all, usually a motive behind their application is the transnational nature of the lex mercatoria. This is different if courts apply general principles and trade usages as a source of domestic law as in that instance, they should interpret these according to the specific domestic law. Nevertheless, in international transactions a more transnational application is warranted. Regardless of whether these trade usages and principles are applied as part of domestic law their international nature should be respected through a more transnational application.
The above demonstrates the difficulty that courts face, when applying the lex mercatoria or its elements. The amount of case law is limited in most
The application of codified non-state rules 189 jurisdictions. Accessing foreign decisions can be time consuming, expensive if translations are needed, and thus often impractical. Using arbitral awards to discover precedents is problematic. Even if some awards arc published, not all awards are, and those that are published are not always published in their entirety.[2] Furthermore, the legal reasoning is often missing, and it can thus not be ascertained why the tribunal reached certain conclusions. Without having a substantial percentage of awards fully published creating an authoritative lex mercatoria case law based on arbitral awards is thus not possible. This is not to say that arbitral cases have no value. An example of a way to use case law to establish the lex mercatoria is the Trans-Lcx project. This database uses case law and scholarly writings to extract principles of the lex mercatoria with references to specific arbitral awards and court cases. This database is thus extremely useful to find the content of the lex mercatoria. It has no authoritative value beyond its persuasiveness, but as the work is (partly) based on case law this ensures a form of legitimacy.
What stands out from this discussion is that the exact content of uncodified non-state rules is not easy to uncover. Therefore, this would leave the court a certain conundrum on how to apply the lex mercatoria. A full research study would be impractical; applying domestic law is not desirable, and using case law difficult.
If the court/tribunal applies the lex mercatoria in addition to a state law, then applying trade usages and general principles of law would pose less of a problem. To find concrete rules the courts can rely on the applicable law to fill in any gaps. These rules can be interpreted through the transnational lens of the lex mercatoria and its established principles. The combination of a state law with the lex mercatoria gives the court flexibility in how to apply the law and certainty in how to fill the gaps. The situation is more complex if non-state rules are applied as the sole governing law. The court/tribunal should then ideally solely rely on the lex mercatoria to solve the dispute. In practice gaps are regularly filled by referring to a state law or by the tribunal relying on their own sense of justice.
Another important way to solve this conundrum is to apply codified non-state rules as lex mercatoria, general principles of commercial law, and trade usages. There are four ways codified non-state rules are applied in this fashion: they are used as a guide to finding the lex mercatoria (or its elements), as evidence for the unwritten lex mercatoria (or its elements), as an expression of the lex mercatoria (or its elements), or as being the lex mercatoria (or its elements).
In the first scenario codified non-state rules serve to uncover the lex mcr-catoria. In the second scenario they are used as evidence for the existence of specific uncodified non-state rules. The codified rules arc not themselves a source of the lex mercatoria in these two scenarios. In the third scenario the codified non-state rules are considered a source of the lex mercatoria. In the fourth scenario the set of codified non-state rules is assimilated with the lex mercatoria or one of its elements.
The advantages for tribunals/courts in using codified non-state rules are clear. They are easy to locate. They are written down. They contain specific articles that can be referred to. A more substantive argument is that these rules arc the result of comparative research and thus represent an accurate reflection of transnational commercial practices. This usage happens especially with the UNIDROIT Principles and the CISG and to a lesser extent with the PECL. These instruments can function as the governing law of the contract because they provide general principles as well as concrete rules. By applying these there is less need to tall back on state law for gap filling purposes.
The next two sections look at the application of the UPICC and the CISG in lieu of the lex mercatoria or one of its elements.
- [1] Barton S Selden, ‘Lex Mercatoria in European and US Trade Practice: Time to Take a Closer Look’ (1995) 2 Annual Survey International and Comparative Law 111,119 2 ICC Award No. 8365, Clunet 1997, at 1078 et seq. Available at: https://www.trans-lex.org/208365/_/icc-award-no-8365-clunet-1997-at-1078-et-seq/. 3 Lord Justice Mustill, ‘Contemporary Problems in International Commercial Arbitration: A Response’ (1989) 17 International Business Lawyer 161,163. 4 See Section 9.2.
- [2] See for instance Bernardo M Cremades and 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 317,336. 2 Translex is a research and codification platform for transnational law. The database was founded and developed by Professor Klaus Peter Berger. The list contains 1549 Principles as of February 2020. http://www.trans-lex.org/.
