Understanding legal authority through application
As discussed in the previous section the legal authority of non-state rules is largely measured by their application in courts. Subsequently, it is important to analyse in which ways non-state rules can be applied and how this application measures their legal authority. In descending order of legal authority these are:
- • Non-state rules are applied in the absence of a choice of law clause by the court. This would place non-state rules on par with (foreign) state law. Courts could apply non-state rules in this way if the private international law of the forum allows for this. This is very rare in litigation but happens with more regularity' in arbitration.
- • Non-state rules are included in a choice of law clause as the applicable law to the contract and they are applied in that capacity by the court.
Several jurisdictions allow for this, but they are in the minority. Nonstate rules arc applied independently as law. Non-state rules have a status grosso modo equal to foreign law in private international law.
- • Non-state rules are applied by courts to interpret the applicable law or to fill any gaps in that law without being included in the contract. The court applies non-state rules in a subsidiary capacity through the applicable law. They are applied as general principles of law or as a filter through which the state law is applied and interpreted. This is what the Supreme Court in Paraguay has referred to as a ‘complimentary law.’ They have legal authority as accepted international commercial law principles and practices.
- • Non-state rules are applied by the court as part of the applicable domestic law. The applicable domestic law recognises (certain) non-state rules as a source of law. Thus, when the court applies this law it has the possibility to apply non-state rules. Non-state rules are not applied independently, but through the applicable state law. Non-state rules have the authority of sources of law in domestic law. They could be considered as primary sources of law or secondary sources of law depending on the jurisdiction.
- • Non-state rules are applied as evidence of accepted international commercial law practices and principles. Courts do not actually apply non-state rules but refer to them. This can be, for instance, to show that the applicable law and accepted international commercial practices would solve the contractual dispute in the same way. In that case non-state rules have the legal authority of scholarship/doctrine.
- • Non-state rules are included in the contract by reference and replace variable rules of the law, but they arc not the applicable law. Non-state rules are applied as contractual rules in a subsidiary capacity at the request of the parties. They have the legal authority of contractual terms.
A final application that should be mentioned is when the enforcement of an arbitral award, where non-state rules arc the applicable law, is requested or challenged. In those cases, courts apply procedural arbitration law that could indicate whether under the specific circumstances the application of non-state rules was valid. The court hence does not apply non-state rules but merely validates their application. However, these decisions often say more about how the forum treats arbitration than how they treat non-state rules. If the exequatur of a foreign judgement based on non-state rules is requested the legal authority of non-state rules is based upon their acceptance by the private international law of the forum regarding enforcement of foreign court decisions.
Figure 11.2 explains how the legal authority of non-state rules can be perceived depending on the type of application.
When non-state rules are applied as the law of contract they arc applied autonomously and directly as (transnational) law or rules of law. The legal authority comes from the instrument itself and from the private international
Stronger
Authority
Strong
Authority
Weaker
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- - Non-state rales are applied in the absence of a choice of law clause
- - Non-state niles are applied as the applicable law
Non-state niles are applied as a source of domestic law Non-state niles are applied to interpret the applicable law Non-state niles are used as legal doctrine/accepted commercial law practices
Non-state rules are applied as contractual mles/by reference Non-state rules are used as legal doctrine/accepted commercial law practices
Figure 11.2 Degrees of Legal Authority of Nou-State Rules
law or the lex arbitri that allows for their application. When non-state rules are applied to interpret the applicable law or as sources of domestic law they arc applied in an indirect way as part of the applicable law. They derive their legal authority from their status in domestic law. Finally, when non-state rules are applied as contractual rules their legal authority comes from contract law. The law recognises that the parties have the freedom to shape their contract. Therefore, the legal authority can be considered weaker even if in practice the effect of these rules would be pivotal for the contract and any disputes
When courts use non-state rules as normative legal scholarship/doctrine the authority of the rules is more uncertain. The court is not applying non-state rules in a direct way, but cites the non-state rule as evidence, as a standard, as accepted practices, or common principles. They would have persuasive value that could be authoritative because they are used as a normative value against which domestic law is measured through furthering the legitimacy of domestic law to adequately solve the dispute. Although in general the legal authority of this usage is weaker this would depend on their status in the jurisdiction. In some jurisdictions legal scholarship/doctrine is applied more frequently than in others and it can be considered a primary or secondary source of law. This is the reason why it can be found in two categories in the above illustration.
The above relates to understanding the legal authority of non-state rules in the domestic sphere and provides criteria against which this legal authority can be measured. The application of non-state rules in domestic law can also help to understand the legal authority of non-state rules in the transnational sphere, although the order is different. It is more difficult to hierarchise this legal authority in the transnational sphere, as there is no existing legal framework against which this authority can be measured. A tentative classification in terms of legal authority is as follows:
- • Non-state rules are used as the applicable law of the contract. The parties to the contract value the specific non-state rules to the extent that they believe these represent the best law for the transaction. Non-state rules have the value of law for the parties.
- • Non-state rules are applied by arbitral tribunals in the absence of a choice of law clause. Non-state rules are applied on par with a state law. They are trusted to function as the best possible applicable law by the tribunal.
- • Non-state rules are included in the contract by reference. Non-state rules arc not the applicable law, but they shape the contract. They are thus valued by the contracting parties, as bringing something to the contract that state law does not do. It could be that the parties would have chosen non-state rules as the applicable law if the jurisdiction allowed for this. The parties trust non-state rules to provide the contractual terms or to guide the interpretation of the contract.
- • Non-state rules are applied by arbitral tribunals in addition to the applicable state law. Non-state rules are used to fill gaps, to interpret, or as reference material. Non-state rules are considered accepted international commercial practices and principles.
- (International) organisations and other groups contribute to understanding the legal authority of non-state rules in the international community in several ways:
- • When (international) organisations draft or recognize non-state rules this demonstrates their support. The authoritative value of this increases if the organisation is more prominent. This contributes to understanding the place of non-state rules as internationally accepted commercial practices.
- • The endorsement of non-state rules by (international) organisations through reference to these in their own legal instruments, recommending their use, or otherwise supporting the instrument (s). The strength of the endorsement and the prominence of the organisation would influence the authoritative value. This also works the other way around when an (international) organisation discourages the use of (certain) non-state rules this could carry persuasive value. An example of this is if trade associations actively discourage the application of the CISG through inserting a clause in their model contracts excluding its application. This contributes to understanding the role non-state rules play as internationally accepted commercial practices.
Most of the scholarly attention is given to the contributions that non-state rules make to legal harmonisation and the possibilities for the parties to choose non-state rules as the applicable law of the contract. This latter constitutes a direct application of non-state rules. Yet, in practice it can be concluded, as evidenced by the analysis in the previous chapters, that the number of cases where non-state rules are the applicable law is limited outside of arbitration. For instance, the UPICC have never been enforced as a direct choice of law before a state court as far as is known. This is mainly because the number of jurisdictions that allow parties to choose non-state rules as the law of the contract is limited. Yet, even in the jurisdictions where this is allowed this choice does not appear to occur frequently as the lack of case law demonstrates. It can be concluded that non-state rules are most often applied to interpret the applicable law (mainly the UPICC), as contractual terms (Incoterms, UCP600 and related contract terms, contract terms of trade associations), or as a source of the applicable law (trade usages and general principles.) Consequently, their role in (international) contract law is greater than in private international law. The principles upon which private international law is based are strongly linked to territory and statehood. Therefore, the autonomy of the parties is defined within the context of the state. The parties can choose a state law, but they cannot choose a law that is detached from the state.
Freedom of contract is one of the foundations of contract law. The parties decide on the content of their contract and this freedom is usually only limited by the public policy and mandatory provisions of the applicable law (and the lex fori). The parties thus have the freedom to refer to non-state rules in their contract. The governing law will then be subsidiary to the express will of the parties as found in the contract, including the referred non-state rules, unless these infringe on mandatory laws and public policy. Arbitration delocalises the contract and therefore within that transnational sphere the freedom to shape proceedings and the applicable law is considerable, including allowing the arbitrator to apply non-state rules as the law of the contract. Therefore, whilst private international law places the connection with the state first, both contract law and arbitration law prioritise the freedom of the parties and this enhances the role of non-state rules.
