Historical background of Lex Mercatoria

4102 words (16 pages) Essay in Commercial Law

02/02/18 Commercial Law Reference this

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Scholars of law have been systematically discussing about nature and function of a body of transnational commercial rules called Lex Mercatoria Since the nineteen’s. The discussions and the subject become more controversial. However, some authors have denied Lex Mercatoria existence whereas a number of authors have list the advantages in many points. With all the universal contributions, the majority of the business and legal communities still does not know about the Lex Mercatoria and its advantages. The process of economical globalization, the adoption of two bodies of codified principles of contract law (the UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law) and the increasingly harmonization of contract law in the EU, call for a fresh examination of the traditional regulation of international contracts are an examples of recent development for Lex Mercatoria [1] .this development will help to make Lex Mercatoria more Popular and serve the international trade community.

What is the Lex Mercatoria definition?

The definition would be a good starting point to know the Lex Mercatoria. Unfortunately, there is no special definition for Lex Mercatoria which can accommodates all opinions and ideas in one definition. The following definitions may help to give a general idea about Lex Mercatoria.

A set of general principles, and customary rules spontaneously referred to or elaborated in the framework of international trade, without reference to a particular national system of laws [2] .

A single autonomous body of law created by the international business community [3] .

The customs of the business Community may combine all general principles of law to create a system of commercial self-determination [4] .

As in the listed definitions it is clear to realize that every scholar have his view in his definition which is different from other scholars. Hence, it is agreed that there is no special definition for Lex Mercatoria.

Historical background of Lex Mercatoria

Lex Mercatoria as concept it is not new at all .According to Goldman the Lex Mercatoria stared in the Empire of Roman and they used it to governing the relation between Roman citizen with other country .On the other hand, some authors said it is started in Egypt or in the Greek and Phoenician sea trade of the Old Ages before in Empire of Roman. However the Lex Mercatoria started in the Middle Ages as the historical roots can be found. In the eleventh century, the Lex Mercatoria has improved more than before; the main cause for this improvement is that the trading relation in the Western Europe became stronger. Lex Mercatoria has found by the effort of the medieval trade community which helps in the international trade needs. For about eight hundred years Lex Mercatoria has been an applied throughout Western Europe among traders as it is one of the law solid basis which made by the traders.

Some of the flaws of the traditional regulation of international contracts had shown after the Second World War by develop the international trade. Business communities were not satisfying with the difficulty and the obsolete of private international law rules. After short time, the governments became aware for the impact for legal divided world upon international trade and they responded by means of international conventions and model laws, which harmonize private international law or substantive law aspects of international transactions. Nowadays, arbitration, factoring, leasing, letters of credit or sales adopted by many conventions and model laws. The process of negotiation and adoption of these conventions is nevertheless difficult and time-consuming. Usually the process of negotiation depend on the economical, social and legal background of the participating states and these background help to make the negotiations more easy without needing for a long time (e.g. the drafting of the 1980 Vienna Convention on International Sale Contracts, CISG, took over 20 years).

In the early nineteen sixties, the scholars said law merchant phenomenon has really appeared. At the same time, they start questioning in the supremacy of national law in international economic relations. By means of standard clauses, self-regulatory contracts, trade usages and, especially, by recourse to international commercial arbitration, traders were creating their own regulatory framework independently from national law, the so-called new Lex Mercatoria

Development of Lex Mercatoria

Traders in medieval Europe wanted to expand international trade, but they could not easily do this as localized legal systems acted as obstacles in their way. [5] Therefore in order to bet around these obstacles, an international system of commercial law began to develop and evolve. This system has since then been referred to as the Lex Mercatoria. [6] Lex Mercatoria can be aptly referred at as “the private international law of the Middle ages.” [7] Commercial law thus emerged during this period as an integrated progressing body of law. The law virtually regulated every aspect of commercial dealings in entire Europe and would sometimes be applied even outside Europe after the eleventh century. [8]

Lex Mercatoria was unique in that as opposed to many modern legal systems, the system governed without involving the coercive power of the state. Hence, it can be said that the Lex Mercatoria was “voluntarily produced, voluntarily adjudicated and voluntarily enforced.” [9] Additionally, the legitimacy of the law merchant was founded on a complex network of voluntary and reciprocal relationships supported by reputations. Traders formed their own courts in every trading center, trade fair or market to arbitrate disputes in accordance with their own evolving laws. This was a participatory process as judges were always selected from the relevant merchant community. The system can be said to have been effective because the judges were experts in commercial issues and also has the respect of the community at large. Lex Mercatoria is related to modern international commercial law because the foundations of commercial law as it can be seen today were laid during the time of the law merchant. [10]

Notably, Mitchell quotes Sir John Davies who wrote in the 17th century that the Lex Mercatoria “as it is part of the law of nature and all nations is one and the same in all the countries the world” [11] . The truth of this matter is that in the 17th, century there were similar commerce laws in England, France, and Germany; and similar rules add proceedings were observed in every nation at that time.

The relation between law merchant and international commercial law

Lex Mercatoria and international commercial law have a strong relation between them and there is a suggestion that Lex Mercatoria is a basic component of international commerce law. According to Gayton, the Lex Mercatoria is likely to become more important in the future because its role is to allow traders themselves to come up with resolutions to trading disputes and founded on concepts of ethical behavior, trust and quick results [12] . This can truly be said of modern commerce laws in which firms are operating beyond the borders of one jurisdiction, hence disputes are best resolved using strategies put in place by the trading partners as was in the Lex Mercatoria.

In the United States, litigation is the main dispute resolution method. In contrast other nations may choose to revive and strengthen the law merchant framework to enable faster management of trade, which involves the local trade custom. Nonetheless, in the United States several components of the law merchant system have been codified into the Uniform Commercial Code (UCC). On a wider scale, the United Nations Convention on Contracts for the International Sale of Goods (UNCISG) is the equivalent of the UCC and as bee ratified by at least 70 countries [13] . According to Felemegas, the UNCISG, which was ratified in 1980, is represents the most recent attempt to harmonize or unify international commerce law. This is because the Convention creates a uniform law for the international sale of goods [14] .

In England, Lord Mansfield, who is commonly known as the “founder of commercial law” reintroduced the Lex Mercatoria with the English law. This was done based on the wanting to develop English commercial law as business practice progressed and there was need to recognize business usage and custom [15] . Over a hundred years later (after the merger of the law merchant with common law), England enacted the English Sale of Goods Act of 1894, which was included many customary rules. This was consolidated into the United Kingdom sale of Goods Act of 1979 [16] . English sales law was later adopted in most of its colonies, and most of common law nations today have modern commercial codes and widespread case law governing the sale of goods and all styled based on the Lex Mercatoria merchant. Canadian sales law for instance makes use of principals from both the English common law and from the American UCC [17] .

Lex Mercatoria can be viewed as a true example of an autonomous legal system and still faces some problems in its evolution. For instance, the Lex Mercatoria is no longer a uniform system and its rules having been split. Additionally, some parts of the law are embodied in national jurisdictions and systems of law while others exist in the regional or international domain. In addition, some parts of the law are embodied in national jurisdictions and systems of law while others exist in the regional or international field. This raises a question as to whether a universal system of commerce law should be developed to govern international commerce, or whether the Lex Mercatoria should be split in nature, with variations from market to market, from jurisdiction to jurisdiction and from region to region. [18]

The need for law based on the Lex Mercatoria can be illustrated by the case, Asante Technologies, Inc. v. PMC-Sierra, Inc. which highlights the important provisions of the UNCISG: the place of business requirement, the ability of parties to opt out of the UNCISG by using the choice of law clause, and the fact that in international dealings the UNCISG preempts the contract laws states in the United States. In this case, the plaintiff, Asante bought electronic parts from the defendant, PMC, whose factory and offices were in Canada. Asante placed orders via the defendant’s authorized distributor, Unique Technologies, operating from California. The order made by Asante stated that the contract “shall be governed by the laws of the state shown on buyer’s address on this order” in contrast, PMC’s stance was that the contract would be governed by the laws of Canada. Transactions were made between Asante and Unique, and when Asante claimed that the goods did not meet the requirements it filed a suit in California state court. The case was later transferred to a United States federal court, but Asante requested that the case be remanded back to state court. It was hover decided that the federal court had jurisdiction over the case because the applicable law was the UNCISG, which is an international Convention ratified by the United States. [19]

In spite of the fact that the Lex Mercatoria is no longer a uniform system, the importance of the law can be seen in terms of many international commercial laws such as the UNCISG. The Lex Mercatoria thus remains the foundation of international commerce law and the way to creating an autonomous legal system.

Sources of Lex Mercatoria

Most of protagonists of Lex Mercatoria are not completely agreed with the sources of Lex Mercatoria. However, there are some sources are emerge which they are consider below.

Public international law

Uniform laws

The General principles of law

The rules of international law organizations

Customs and usages

Standard form contracts

Reporting of arbitral awards [20]

To this list one must evidently add the public policy of the country in which enforcement of the award is likely to be requested [21] .

The new Lex Mercatoria

The arbitration has been chosen as method of dispute resolution by the parties to international business in the beginning of 1920s. Referred to national courts the disputes arising out of international trade became frequently less. The arbitration has chosen as a preferred form of dispute resolution in International Trade Law especially after the Second World War [22] .Nowadays, most of the international trade contracts leave out the national jurisdiction and enclose a clause choosing arbitration as their method of dispute resolution [23] .As shown, the international commercial arbitration become as a preferred using method of dispute resolution in international trade.

International commercial arbitration and Lex Mercatoria are linked together because both of them depend on the parties’ choice and contractual stipulations. Owing the many advantages arbitration over national jurisdiction, the international commercial arbitration become more important for the traders.

Parties must insert an arbitral clause into their contract, then international trade dispute can solve by arbitration. Parities can choose the arbitrators, the applicable law and rules of procedure, time, language and place for their dispute. Whereas, the parties can avoid rigid national rules concerning the procedure, the language and the place of the proceedings and the meaning of certain terms. The opportunity of choosing the arbitrators means that the dispute can be solve by people with a special knowledge of the parties’ trading activity or branch of trade and the dispute can be decided by a person whom all the parties trust .Arbitration can be a system of dispute resolution aimed to avoid the national laws with a big extent of autonomy for the parties [24] .So, the arbitration is conducted consensually according to the conditions set by the parties in their contract. According to a modern approach that is at present being followed by the majority of the scholars and national arbitration laws, the principles selected by the parties it is not important to be a national law [25] . The arbitrators can solve the dispute in good composition applying fair principles or by using the rules of the Lex Mercatoria.

Saving in cost and speed are the more important advantages for Lex Mercatoria. Some authors indicate that these advantages are a needless generalization and call this point of view traditional [26] .on the same hand, the finality of an arbitral is the major advantage as their time and money are not going to be lost in appeal. It has also been submitted that the enforcement of an arbitral award is easier and the enforceability more probable compared to a non-national award: …”since finality is one of the key attractions of arbitration it is an almost universally accepted principle of national laws, as reflected in the UNCITRAL Model Law on Arbitration, that courts should be slow to interfere with arbitral awards, even if they appear to be erroneous in fact or law, with the result that it is inherently harder to upset an award than it is to reverse a judge on appeal [27] . On the other hand, some authors do not find this convincing since an arbitral award not to guarantee voluntary compliance and enforcement supposedly depends on national courts” [28] .

Furthermore, privacy is very significant in the arbitration. The public, press and business partners will not be able to know anything about the dispute. As this tendency, national jurisdictions and national rules of conflict will lose the significance in International Trade Law. Nowadays, the majority of international disputes resolved by arbitrators engage matters of international trade [29] .

“Homeward trend of national courts” is another factor which is help to increasing popularity of arbitration [30] . State courts have a tendency to announce their own law applicable to the substance when they face an international trade dispute and connected with more than one national law because the judges wish to apply the law they are familiar with and trying to avoid applying a foreign law [31] . Parties expect a solution, when they choose arbitration, which is based on the particulars and the circumstances of the contract than on a national law. The “homeward trend” is less related to arbitral tribunals because they have arbitrators who are form different counties and know about the about the peculiarities of international trade and not of national judges who only know about their own law [32] .

The nature of the disputes and cases which the national courts deal with is different from the disputes resolved by international arbitration. International trade affairs face by Arbitral tribunals by their nature. Arbitrators should cross the boundaries of national law to make an award which can reflect the particularities of international trade.

The commerce growing are hindering by the aforementioned codifications. A search was made by the merchant community to find the way rediscover universally accepted rules such as the London Corn Trade Association used standard form contracts as early as 1877 [33] .

Grossmann-Doerth published a significant article in 1929, he explained that the development of an autonomous law of commerce and trade, which contain the standard form contracts, the customs and usages and the uniform laws published by international organisations. According to him, jurists and national legislators are not responding about formulating the law of international trade but the community of international merchants is the reason of it existence and merchant community has ousted the national laws and the significance of arbitration as method of dispute resolution is growing [34] . The national legislator is not respond for the developing of this autonomous law it develops without the interference of the national legislator. Also, he discovered that written law or a clause in a standard form contract cannot override usages. The national courts were still reluctant to acknowledge this, merchants and arbitral tribunals were accepting it [35] .To explain this point, world export in 1980s was almost fifty times the capacity of 1950 and more than 130 times the capacity of the late 1930s [36] .the world export volume more than tripled from 1984 to 2002 [37] .business world to overcome economically has enabled by the emergence of a transnational law merchant, culturally and politically motivated difference between the national trade laws. The rules of law merchant have created by the international merchant community. For some trade cases national laws could be unnoticed it such as arbitral tribunals were free to base their awards on considerations different from those of the national courts [38] .

Nowadays, the multinational enterprises are equal to the medieval merchants. They do a lot of business transactions around the world but are usually based in one country. As the medieval merchants which mentioned before, multinational enterprises which they have their own laws are confronted with a lot of different national laws through their trading activities. So, with the appearance of multinational enterprises, the need for a Lex Mercatoria, to issue law to all merchants became obvious.

In 1964, the emergence of Lex Mercatoria which contains all the features of a system of law has observed by Goldman. According to him, all the international commercial transactions is governing by national law except for those involving only states or state entities, for their relationships are governed by Public International Law.

In 1961, new article about law merchant has published by Goldstajn. According to him, the development of Lex Mercatoria arising from two legal factors:

The optional character of trade law.

The growing popularity of arbitration as method of dispute resolution in International Trade Law.

The reason for the emergence of Lex Mercatoria is the many differences between national laws and the inadequacy of national laws for governing international trade relations. Creation of a world market listed by him to explain the economic factors for the development of the new law merchant in order to get the highest degree of productivity and the technological developments which lead to a closer integration of the various markets [39] .

In 1964, a similar concept has developed by Schmitthoff. He has a theory about International Trade Law and Lex Mercatoria and he developed his theory. New law merchant’s sources has also identified by him like conventions, uniform laws, usages and rules of international organisations [40] .

According to Schmitthoff, the new Lex Mercatroia had developed in three stages:

In the middle Ages, the universal customs which were derived from the usages of the international merchant community were the core of the law of international trade.

Mainly in century, codifications of the law of international trade were in this time, during the loss of its international character and universality.

Which he think to be contemporary, the emergence of a new universal Lex Mercatoria can be observed [41] .

Nowadays, piecemeal regulation of international commerce has realized by the nations and they think the application of independent national laws will slow down the growth of global trade [42]

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