The application of codified non-state rules as lex mercatoria
One of the important conclusions on how non-state rules arc applied is that codified non-state rules are often applied as an expression or a reflection of uncodified non-state rules. Trade usages and general principles of law can be sources of domestic law. Codified non-state rules usually are not recognised as a source of domestic law. In practice, there is substantial interaction between codified non-state rules and uncodified non-state rules.
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Ralf Michaels,‘Non-State Law in The Hague Principles of Choice of Law in International Contracts’ (2014) 6 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2386186.
When courts or arbitral tribunals apply the lex mercatoria or its elements (trade usages or general principles of law) there is a need to determine their actual substance. These uncodified non-state rules are imprecise. There are multiple possibilities of what these could entail and determining which of these possibilities should be used is difficult and time consuming. This flexibility is sometimes needed as it allows tribunals leeway to find an appropriate solution. To find the concrete rules the court/tribunal cither uses the lex fori or another state law, their own sense of justice, or they turn to codified non-state rules. These codified instruments arc easy to research and they are accompanied by material on how they should be applied and interpreted. This represents a substantial advantage for the court/tribunal.
There are four ways in which codified non-state rules are applied in this fashion.
- • As a guide to finding the lex mercatoria. The court uses codified non-state rules to find underlying commercial law principles and trade usages.
- • As a reflection of the lex mercatoria. Codified non-state rules are applied as evidence of the lex mercatoria. They are not a source of the lex mercatoria, but they reflect the lex mercatoria.
- • As an expression of the lex mercatoria. Codified non-state rules form an intrinsic part of the lex mercatoria. They are a source of the lex mercatoria.
- • As being the lex mercatoria. The specific instrument is applied as lex mercatoria without further indication that the lex mercatoria is more than just this specific instrument.
From the case analysis in chapter 10 it can be observed that in practice courts/tribunals do not always make the distinction between these four different ways of applying codified non-state rules. For instance, when a court applies the UPICC as the lex mercatoria it is doubtful whether the court/ tribunal wants to imply that these constitute the whole of the lex mercatoria. Even if it is formulated in this fashion, this is most likely not what is meant. The most common application is that codified non-state rules arc applied as a reflection or as an expression of the lex mercatoria. Most cases, as was seen in chapter 10, do not rationalise why the choice was made to apply codified non-state rules as the lex mercatoria. The court might state that general principles of law arc the applicable law and that these are best reflected or expressed by the CISG or the UPICC. Yet, why this is the best reflection or expression is not explained. That leaves the question whether tribunals and courts make a conscientious distinction between expression and reflection.
Whilst not being the perfect solution, using codified non-state rules as lex mercatoria can be justified. Codified non-state rules use trade usages and principles as their starting point. Consequently, there is an intrinsic linkage between the lex mercatoria and codified non-state rules. Yet at the same time although unwritten usages and general principles of law arc the starting point of these codifications the work also represents an innovation. This has several reasons. The first is that the exact content of uncodified non-state rules is difficult to uncover. There arc diverging opinions on the substance. The second reason is that the drafters make choices during the process. They discover differing practices and norms and they innovate on these to find what they consider to be the most appropriate solution. So, whilst existing uncodified non-state rules have an impact on the codification the end result is still a different product. This therefore makes it unlikely that at the time of writing they are a true reflection of the lex mercatoria.
If codified non-state rules are not a precise reflection, then perhaps application of these as an expression of the lex mercatoria would be better. That brings up the question of whether codified non-state rules do not have a nature which is so different from the lex mercatoria that it would be difficult to justify that they are part of this. After all, the lex mercatoria is unwritten and spontaneous in origin. Two characteristics that codified non-state rules do not share. This makes it difficult to claim that codified non-state rules are a source of the lex mercatoria.
It should be asked what the expectation of the parties is in such cases. When parties choose non-state rules as the applicable law, they most commonly refer to general principles of law, international principles of law, lex mercatoria, or another such formula.[1] Therefore, the parties do not necessarily expect codified non-state rules to be applied. After all, if the parties wanted for instance the UPICC as the applicable law to the contract they could just have included that in their choice of law clause.
Yet, it could be countermanded that when tribunals/courts decide to apply codified non-state rules as a reflection or expression of the lex mercatoria this seems to be accepted by the parties judging from the limited number of appeals made on this specific point.
Another concern with applying codified non-state rules in lieu of the lex mercatoria is that this could lead to ossification of the lex mercatoria and loss of flexibility. Although codified non-state rules can be amended and updated (as can be observed with the UNIDROIT Principles) this does not always happen (as can be seen with the PECL as the commission that drafted those no longer exists and the CISG which is a convention and thus not amended easily.) The assimilation of the lex mercatoria and conventions could make the first more formalistic and this touches on the very core of what the lex mercatoria is.
Despite these concerns there is a clear trend towards applying codified non-state rules in this way. One of the reasons why courts can be reluctant to apply non-state rules is that these arc not clearly defined and uncertain, but the existence of codifications solves this issue. This is advantageous in terms of accessibility and unambiguity. Furthermore, they are more complete,
Ascertaining the legal authority of non-state rules 215 concrete, and coherent. Applying trade usages and general principles of law leaves gaps and courts would usually fill this with reference to a domestic law. Especially if non-state rules are applied as the governing law then using the codifications ensures a more certain and predictable application which also benefits the parties to the contract. Uncodified non-state rules constitute a patchy landscape and to fill any gaps reference is often made to a state law. By applying codified non-state rules to either fill in these gaps or on their own, it is easier to solve the dispute without needing to refer to a state law.
If non-state rules truly gain legitimacy and authority through their application, then dissuading courts/tribunals from using codified non-state rules would also countermand the nature of the lex mercatoria. The risk of the arbitrator or court settling as amiable compositeur without authorisation is present when the content of the lex mercatoria is imprecise and unclear. This issue thus has different sides whereby there is need for both flexibility and certainty.
A solution presents itself. If courts and arbitral tribunals continue to apply non-state rules as elements of the lex mercatoria and if the parties accept this application, then this constitutes an acceptance of these codified non-state rules, which gain legal authority in the international community. As the lex mercatoria consists of unwritten rules these codified non-state rules could not be part of the lex mercatoria. Yet, if the codified non-state rules have shaped trade usages or general principles, they could be said to constitute an adequate reflection of the lex mercatoria. Thus, what was not true in origin becomes true through regular application over a longer period of time. It would be incorrect to name codified non-state rules as a source of the lex mercatoria, but individual non-state rules could develop into a reflection of the lex mercatoria and its elements.
In this usage the UNIDROIT Principles play a key role. When one reads through the preceding chapters it is noticeable that many of the cases use the UPICC as the primary example to interpret the lex mercatoria as does much scholarly research. Thus, rather than being chosen as the law of the contract, the UPICC are mainly used as an expression/reflexion of the elements of the lex mercatoria. Other instruments that are used in this way are the CISG, the PECL, and the Incoterms. Although the CISG has the oldest papers of the three and is binding law in many countries, it is limited to international sales law and it does not contain general principles of contract law. Furthermore, the CISG dates from 1980 and has not been amended since. Therefore, it does not have the same flexibility as the UPICC provides. It also a convention and therefore drafted to function as part of the domestic legal system. The PECL and the PLACL are regional instruments, The Incoterms and the UCP are used as trade usages, but they only cover a limited area of law. The UPICC offers the most complete codification of transnational contract law. Hence, it is clear why the UPICC take the
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The UNILEX database indicates that their most frequent usage is to interpret domestic law and the second most common usage is their application as lex mercatoria.
leading role in interpreting the lex mercatoria. Codified standard terms and conditions (cither by the ICC or by trade associations) arc especially popular as contractual terms and the parties frequently incorporate these in their contract. The international business community also plays a more important role in drafting these contractual terms. These thus have the support of the international business community and arc chosen far more frequently by the parties than the UPICC. The initiative to use the UPICC often comes from the court/tribunal, rather than from the parties.
How often the UPICC are used is not clear. In 2011 UNILEX reported 107 decisions of domestic courts and 159 arbitral awards that made reference to the UNIDROIT Principles.[2] In February 2020 there are 254 decisions from domestic courts and 215 arbitral awards that make reference to the UNIDROIT Principles. This indicates that especially the usage of the Principles in domestic courts has risen substantially.
Two remarks need to be made. UNILEX is not a complete database. UNIDROIT is dependent upon these cases being reported to them. Especially, from certain jurisdictions there might be underreporting because cases are not registered online. This means that the numbers in practice will be higher. The second issue is that UNILEX reports on every case where the UNIDROIT Principles arc mentioned regardless of whether they played a deciding role in the case. In some cases, they arc merely referenced by one of the parties. Nevertheless, it can be concluded that the usage of the UPICC (whilst modest) is on the rise.
Through the application of codified non-state rules as a reflection of uncodified non-state rules they both become more intrinsically linked. Trade practices can become usages. Usages may become custom. General principles might be distilled from trade usages and custom. General principles of law and trade usages form the basis for codified non-state rules.
Consequently, although non-state rules arc not a coherent whole they are linked, there is interaction between rules, which leads to a strong mutual influence and co-dependency. They share a common objective: securing and facilitating international commercial relations. They share the same ways of measuring legal authority: support in the international community, support in domestic law, incorporation in contracts, and most importantly, application by state courts and arbitral tribunals.
- [1] Michael Joachim Bonell, 'The UNIDROIT Principles and Transnational Law’ [2000] 5 Uniform Law Review 199, 204. 2 Philippe Kahn, ‘Les Conventions Internationales de Droit Uniforme devant les Tribunaux Arbitraux’ (2000) 5 Uniform Law Review 121, 127.
- [2] Eleonora Finazzi Agro, ‘The Impact of the UNIDROIT Principles in International Dispute Resolution in Figures’ (2011) 16 Uniform Law Review 719, 720. 2 http://www.unilex.info/dynasite.cfm?dssid=2377&dsmid=13617.
