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Do the UNIDROIT Principles of International Commercial Contracts form a new lex mercatoria?

Gesa Baron, Bonn/Edinburgh [*]

"Custom, not law, has been the fulcrum of commerce since the origins of exchange."

L. Trakman [1]


I. Introduction and Course of Examination

Party autonomy allows the parties to choose the law that shall be applicable to their contract. Especially in the context of arbitration, the question arises, as to whether the parties may also choose the lex mercatoria or "principles of transnational law" as applicable law to the contract. The answer is highly controversial, in particular because the possible user does not have recourse to a defined and concrete set of rules.

Not long ago in 1994, UNIDROIT (International Institute for the Unification of Private Law) published its "Principles of International Commercial Contracts". By its drafters and some commentators, these Principles were soon celebrated as the new lex mercatoria and an answer to the longlasting debate. Is there a good reason for this enthusiasm?

This essay will pursue the question of whether the UNIDROIT Principles (hereafter called "Principles") can really be considered as a new lex mercatoria. Starting with a historical description of the ancient lex mercatoria (see II 1. and 2.), it will then turn to the theory of a modern lex mercatoria (see II 3.) and outline the debate concerning the lex mercatoria as being an autonomous body of law (see II 4.). In its second part, this paper will explain the idea of the Principles (see III 1.) and examine them in light of the specific characteristics of a lex mercatoria (see III 2.) and the criticism put forward against it (see III 3.). Hereby, it will be demonstrated that the Principles with their autonomous and yet non-binding character do not only meet the substantive requirements of a true law merchant, but that they also counter some of the main points of criticism against the modern lex mercatoria. As such, the Principles constitute a corner stone in the lex mercatoria debate and may become the heart of the new lex mercatoria.

II. The Lex Mercatoria

When looking at the question as to whether the Principles form a new lex mercatoria, the use of the term "new lex mercatoria" suggests that there must be something like an "old" or "ancient lex mercatoria". Indeed, the idea of the lex mercatoria is not a new invention of recent years but dates back to the Middle Ages.

1. The Medieval Lex Mercatoria

In the eleventh and twelfth century, Europe experienced a great growth of commerce, a commercial renaissance, creating a European trading community which developed a new system of law to govern its commercial activities.[2]

It was a special law for the merchant class that first grew in the Italian cities and then spread to France, Spain and the rest of Europe including England.[3] Trade was above all pursued in the great markets, fairs and seaports, which were the main trading places. The merchants, trading across boundaries and transporting practices into foreign markets, had a mobility that carried with it a mobility of local custom from region to region. Towns and markets soon reduced local practices into regulatory codes,[4] and the laws of particular towns, usually those that were trade centres, inevitably grew into dominant codes of custom of transterritorial proportions.[5] Encouraged by the ocean trade with its centres in Venice, Genoa, Marseilles, Barcelona, Amsterdam and the Hanseatic towns, the law merchant soon received a truly cosmopolitan character [6] and reflected the ultimate move away from local law towards a universal system of law.

The lex mercatoria governing a special class of people (merchants) in special places (markets, fairs and seaports) was very distinct from local, feudal, royal, and ecclesiastical law.[7]

Its special characteristics [8] were that it was first of all transnational. Secondly, it was based on a common origin and a faithful reflection of the mercantile customs. Thirdly, it was not administered by professional judges but by merchants themselves: it was developed and promoted by mercantile corporations and the special jurisdiction of the mercantile courts,[9] business practice and the special courts of the great markets and fairs. Fourthly, its procedures were speedy and informal and finally fifthly, as overriding principles, it emphasized freedom of contract and decision of cases ex aequo et bono.

As such, it reflected perfectly well the commercial need to promote trade based upon freedom and recognized the capacity of the merchants to regulate their own affairs through their customs, their usages, and their practices.[10]

2. The Absorption and Disintegration of the Lex Mercatoria

In England, beginning in the seventeenth century, the autonomous law merchant was curtailed and forced back with the development of a common law. With time, especially under Lord Chief Justice, Sir Edward Coke, the Court of Admiralty and other specialized courts formerly applying the lex mercatoria were abolished or limited in their jurisdiction. Commercial disputes were now solved according to common law while the rules of the law merchant, though not officially abolished, were simply treated as commercial customs and practices that had to be proved in each case [11] "to the satisfaction of twelve reasonable and ignorant jurors".[12]

It was not until Lord Mansfield (1705 - 1793) that the lex mercatoria came to honour again. In the famous case of Pillans v. Mierop [13] he held that the rules of the law merchant were questions of law to be decided by the courts rather than matters of customs to be proved by the parties. Thus, the law merchant was made an integral part of the common law.

It was in the nineteenth century, that the most important parts of the commercial law on the basis of common law decisions were embodied into various statutes.[14]

On the Continent,[15] it was the appearance of national legislation in the age of mercantilism which on one hand effectively promoted the commercial law, yet at the same time led to the decline of the custom-based merchant law and its universality. The emergence of national laws and statutes marked the end of the ancient lex mercatoria. At the latest, with the era of codification in the nineteenth century, it had dissolved into the various domestic legal systems.[16]

With the nationalization and codification of commercial law, a developing commercial law, flexible, universal and transnational in character, ceased to exist. Surely, the incorporation of the law merchant into different national systems added an international dimension to these legal systems without which the needs of the commerce of the different national states could hardly have been served. Yet, national commercial law lost the cosmopolitan dimension and became increasingly divorced from experience,[17] which was often coupled with a hostility towards mercantile custom.

3. The Modern Lex Mercatoria

Merchant law was not yet dead -- the will for world trade was stronger than the national restrictions and limitations of the commercial law: merchants created internationally legal structures and instruments that had to be recognized by national legal systems in order to reach a common base for international trade relations.[18] Furthermore, non-governmental institutions like the International Chamber of Commerce (ICC) [19] started in the 1920's to foster international trade law by developing uniform standard rules and procedures.[20] There emerged a trend of rediscovering the international character of the commercial law and to move away from the restrictions of national law to a universal, international conception of international trade law. This trend was driven by the business community.[21] In the 1960's, Berthold Goldman, Clive Schmitthoff and Aleksander Goldstajn [22] were among the first to point at this development, at this "new law merchant" and at its tendency to be autonomous.

It is not surprising that the idea of the lex mercatoria has been revitalized: businessmen involved in cross-border transactions were increasingly and still are dissatisfied with the unsuitability of some national laws for international commerce [23] and with the results of the conflict of law rules which often appear arbitrary and impractical.[24] A system of supra-national legal principles, it is felt, could oust the technicalities [25] and "blind mechanisms" [26] of national legal systems and could help escape the vagaries of national law.[27] A common core of rules and principles would permeate the various legal systems and would thus provide a common frame of reference for negotiations between parties from different legal backgrounds.[28] Furthermore, a growing body of commercial practices promises to be more flexible and adaptable to commercial needs than the domestic legal systems.[29]

To many jurists, these reasons to promote a supra-national legal system were sound and convincing, and soon the idea of a new lex mercatoria found many admirers who picked up its elements and developed them further. Meanwhile, a number of distinguished authors adhere to the concept of the modern lex mercatoria.[30] They see it as a growing body of uniform and a-national rules consisting of customs and usages of international trade and of those principles, concepts and institutions which are common to all or most of the states engaged in international trade.[31] And it is the dynamic potential inherent in the merchant community and in all areas of modern international commercial law which they regard as the driving force behind the creation of this uniform body of transnational law.[32]

The authors who advocate the modern lex mercatoria are numerous and as such, it is not surprising that their views about its status and shaping are not congruous in every detail.[33] There is, for instance, disagreement in respect of the exact meaning of the term "modern lex mercatoria", i.e., the constituent sources of the lex mercatoria.

Some authors take a wide approach and equate the lex mercatoria with transnational commercial law. Hereby, they do not only classify international standard form contracts, general commercial practices, trade usages, customary law, codes of conduct, rules of international organisations and generally recognized principles of law as constituent elements of the lex mercatoria, but also international conventions and uniform laws.[34] Other supporters of the lex mercatoria take a more narrow view in that they emphasize its customary, spontaneous and thus non-statutory nature.[35] Accordingly, they exclude international conventions, uniform laws and other statutory law as a primary source of the lex mercatoria (although those may, of course, influence the general principles of commercial law).[36]

Because the specific problems of transnational commercial custom which shape the controversial debate relating to the lex mercatoria (i.e., Is it a law? An autonomous legal order distinct from national legal systems? [37]) [38] do not arise with respect to rules of state or interstate origin, the latter narrow view shall be followed for the purpose of this essay.

4. The Debate

Since the idea of a new lex mercatoria was introduced some decades ago, it has kindled a highly controversial debate between those in favour and those against the lex mercatoria, which almost resembles trench warfare.[39] With the popularity of international commercial arbitration and the recent efforts and projects of harmonizing international contract law,[40] this debate has regained its importance. Authors and commentators are still divided into two camps - "mercatorists" and "anti-mercatorists".[41] Their controversy finds its climax in the question as to whether the lex mercatoria is a true body of law distinct and autonomous from national legal systems and whether as such, the parties to a contract can validly choose the lex mercatoria as the law governing their contract by including a choice of law clause referring to the lex mercatoria (general principles of international commercial law or alike) as the proper law of the contract. The arguments of the two opposing sides will be outlined hereafter.

(a) Arguments against the Lex Mercatoria

Many authors doubt that there is such a new lex mercatoria in the sense of an international commercial law autonomous from any state law. At least, they deny that it exists in any useful sense and that it is beneficial for solving commercial disputes.[42] Several arguments are put forward to support this view:

The main point of criticism refers to the lex mercatoria as not being a "law". The lex mercatoria not only lacks a methodological base and a legal system supporting it and is dependent on national legal systems to work efficiently,[43] moreover, it does not have any state authority from which it can derive its binding force. As such, it is argued, it cannot govern a contract, because a contract concluded between private parties must be based on the municipal law of some state. Law means national law, law made by nation-states. Hence, a contract intended to be subject to the lex mercatoria would be a stateless contract, one floating in a vacuum. As expressed by Highet, a "state free contract" [44] presents the paradox of the "contrat sans loi -- un marteau sans maître -- which is . . . a logical impossibility and an intellectual solecism".[45]

The issue of "becoming law" is particularly problematic in respect of standard form contracts and trade usages which are said to be an important part and source of the lex mercatoria.[46] Indeed, they can frequently be encountered in the commercial world. Yet, if standard form contracts have any considerable influence on business transactions, then it is a starting point for contractual negotiations. Using them, the commercial negotiations are meant to be facilitated and speeded. Hereby, it is argued, standard form contracts cannot create any legal rules of law [47] and can therefore not be any source of law. Usages of international trade only acquire the character of law to the extend that they are incorporated into a national legal system, either expressly or tacitly. Just because they are available as a source for interpretation or amplification of contractual clauses does not make them law.[48]

A second strong argument, very often put forward against the lex mercatoria as an autonomous body of law, is its incompleteness, vagueness and incoherence.[49] What constitutes this alleged body of law? Where is it to be found? The general principles, rules which are reflected in the law of all trading nations and which are said to constitute the core of the lex mercatoria, are to be distilled by means of a comparative analysis of representative national laws.[50] Yet, which rules and principles are common to a generality of nations? Considering the diversity of national legal systems (civil law, common law, Islamic law) and the vast number of states, one will most likely find only very few principles that are truly common to a representative number of legal systems.[51] Those principles that may finally be identified are often too general and too broad [52] to solve any but the simplest problem, let alone a complex commercial dispute.[53] The often cited principles of good faith or pacta sunt servanda are as such abstract principles. They gain colour by the supplementary rules and explanatory court decisions in the various national legal systems. Those supplementary clarifications will, however, rarely be general.[54]

The incompleteness of the lex mercatoria, it is feared, might lead to arbitrary results and hence to a "palm-tree justice".[55] The celebrated flexibility of the lex mercatoria (determining its particular suitability for international trade) makes it relatively easy for arbitrators to circumvent the prescribed limits of their authority and might encourage them to use the lex mercatoria as "a fig leaf to hide an unauthorized substitution of (their) own private normative preferences for . . . the properly applicable law".[56] All this, however, does not provide the certainty and predictability that is of such vital importance to the commercial world.

Neither being a body of law nor a coherent system of rules, the lex mercatoria -- according to the aforedescribed view -- might be classified as extralegal standards that have been accepted by law.[57] As such, they cannot govern a contract or a commercial dispute.

(b) Arguments In Favour of the Lex Mercatoria

The authors in favour of the lex mercatoria, in contrast, defend the lex mercatoria as being a law:

The refusal of the "anti-mercatorists" to accept the lex mercatoria as an autonomous body of law stems from a jurisprudence of positivism which is based on the theory that all law is derived from the will of the sovereign state and that international law is derived from the coincidence of the wills of many sovereign states.[58] Hence, legislation is seen as the heart of law, whereas the role of custom is minimized.[59]

Other than the legal positivists the "mercatorists" start their concept of the lex mercatoria from the fundamental idea that in general, law can emerge independently from whether there is an organ which can formalize it.[60] As Lando puts it, "the binding force of the lex mercatoria does not depend on the fact that it is made and promulgated by State authorities but that it is recognised as an autonomous norm system by the business community and by State authorities".[61] As such, the lex mercatoria is different from the traditional concept of "law" as the law to be found in lawbooks, codes and case law. It is moreover part of the "living law" which is the product of the adaptability, creativeness and inventiveness of the merchants and which therefore concentrates on those legal norms that can be enforced in practice.[62] Assuming that the lex mercatoria constitutes an independent legal system beside national law, the reference by the parties to the lex mercatoria, general principles of international commercial law and alike does not leave the contract in a legal vacuum,[63] and there is no reason why the parties should not be able to choose the lex mercatoria as the proper law of their contract.

None of the mercatorists claim that the lex mercatoria constitutes a complete, precise and exhaustive set of rules. Yet, this is also true for the national legal systems. They, too, are incomplete and require gap-filling. Every decision based on a law bears therefore a certain degree of openness and unpredictability. As such, the lex mercatoria is very much in line with the national or international legal systems.[64] Furthermore, it is not as vague and rudimentary as its opponents claim it to be: in a number of specialised areas of international contract law there are highly sophisticated rules, and as far as the general principles of international law are concerned, there is meanwhile a solid number (which is constantly increasing and progressing) of listings which outline and explain these general legal concepts and principles. With time and an increasing number of arbitral awards, these principles will be refined, more complete and sufficiently concrete. Why shouldn't arbitrators take up the same interpretative and gap-filling position as judges did and still do within national legal systems?[65] Every legal system has to start somewhere. Hence, the temporary incompleteness of the lex mercatoria cannot be taken as an argument against the status as law and against its applicability in international commercial contracts.

III. The UNIDROIT Principles

The longlasting debate concerning the existence and recognition of the lex mercatoria as an autonomous legal system was suddenly again in the centre of attention and received new impulses, when in 1994, UNIDROIT published its "Principles of International Commercial Contracts",[66] which were frenetically welcomed as new lex mercatoria in the camp of the mercatorists. With the above outlined background of the lex mercatoria debate, it will now be examined whether the UNIDROIT Principles can rightly be claimed to be the heart of the modern lex mercatoria. For this to be, one would, on one hand, expect the Principles to fulfil the characteristics of a law merchant and, on the other hand, would wish the Principles to counter the criticism put forward against the theory of the modern lex mercatoria as autonomous legal system.

1. General remarks

a) The Idea of the UNIDROIT Principles

In practice, efforts to unify the private law were mainly concentrated on binding acts of law in the form of conventions and model laws, and -- if non-legislative -- only on very limited and specialised legal niches. In contrast, the Principles are based on the idea, that private law can also be unified other than by legislative means. The idea was inspired by the American Restatements of the Law of Contracts,[67] according to which the international law of contract was meant to be elaborated in a comparative approach, summarized and structured. Principles were to be laid down that were common to the existing national legal systems and/or which seemed best adapted to the particular needs of international commercial contracts.[68] As such, the aim was "to establish a balanced set of rules designed for use throughout the world irrespective of the legal traditions and the economic and political conditions of the countries in which they are to be applied."[69]

Although phrased as a rule of law, the Principles were deliberately not drafted as a convention or model law to be transformed into national law. Instead, the idea was to elaborate international principles of contracts without a direct binding force, the acceptance and application of which were exclusively dependent on its persuasive power and the authority of UNIDROIT.[70] According to Bonell, a "novel product of the international commercial law" was created.[71]

Yet, the Principles go far beyond the mere compilation of principles identified by a comparative analysis. Attempting to lay down the general principles of contract law in a coherent code-like form, they intend to be a modern ius commune,[72] a ratio scripta [73] of a supranational legal order of trade. Their scope of application is laid down in the Preamble in a non-conclusive list which provides, inter alia, that the Principles "shall be applied when the parties have agreed that their contract be governed by them" and that they "may be applied when the parties have agreed that their contract be governed by 'general principles of law', the 'lex mercatoria' or the like."

As such, the Principles themselves link to the idea of the modern lex mercatoria.

It was a primary goal of the drafters to create a system of rules that is "sufficiently flexible to take account of the constantly changing circumstances brought about by the technological and economic developments affecting cross border practice" [74] and that at the same time attempts "to ensure fairness in international commercial relations . . .".[75]

This goal is mirrored in many of the articles and in the basic ideas underlying the Principles, which were identified [76] as the freedom of contract,[77] openness to usages,[78] the so-called favor contractus [79] and the idea of good faith and fair dealing in international trade.[80]

b) Formation and Sources of the UNIDROIT Principles

The Principles were drafted by a working group that was specifically formed for this purpose. Its members, representing all different legal and socio-economic systems, were leading experts in the area of comparative law and international trade law, among them were legal scholars, judges and civil servants. It is important to note that the members of the working group were appointed in their own capacity and not as representatives of their governments or their own legal systems.[81]

In their comparative work, emphasis was not only placed on considering as many national legal orders as possible but especially on finding a synthesis between the different legal systems, namely between the civil and the common law.

However, in view of the manifold national legal orders, the drafters had to limit and concentrate on a few national codifications or compilations of law, which were those of a more recent date, such as the American Uniform Commercial Code, the Restatement (Second) of the Law of Contracts, the draft of the new Dutch Civil Code and the new Civil Code of Québec. As international sources, special attention was given to the 1980 Vienna Sales Convention and, where appropriate, to non-legislative instruments by professional bodies or trade associations, such as INCOTERMS [82] or the Uniform Customs and Practice for Documentary Credits.[83] [84]

The Principles were originally drafted in English, but have already been translated into French, German, Italian, Spanish, Arabic, Chinese and Russian and will soon be published in these (and more) languages both with text and comment.

c) Structure and Formal Presentation

The Principles are composed of a Preamble and 119 articles divided into seven chapters, namely "General Provisions" (Chapter 1), "Formation" (Chapter 2), "Validity" (Chapter 3), "Interpretation" (Chapter 4), "Content" (Chapter 5), "Performance" (Chapter 6) and "Non-Performance" (Chapter 7). Each article is accompanied with comments which are intended to explain the reasons for the black letter rule and the different ways in which it may operate in practice. Where appropriate, the comments also contain factual illustrations. These comments are to be seen as an integral part of the Principles,[85] because not infrequently, they not only explain the black letter rule but also supplement it.

As far as possible, the Principles deliberately avoid the use of a terminology that is peculiar to any given national legal system. Preference has been given to some extent to those terms and expressions which are commonly used in international contract practice. One example [86] is the term "hardship" which refers to situations in the various national legal systems otherwise known as "impracticability", "frustration of purpose", "imprévision", "Wegfall der Geschäftsgrundlage ", etc. Where in one case or another a specific term peculiar to one or more national legal systems is used, this term is to be interpreted "autonomously", i.e., in the light and context of the Principles themselves and not by reference to the meaning given by the relevant national legal system.[87] This autonomous and international character of the Principles is of vital importance and is also stressed by the fact that the comments to the black letter rules systematically refrain from referring to national law in order to explain the origin and rationale of the solution chosen.[88]

2. The UNIDROIT Principles as Law Merchant

As already outlined above,[89] for the Principles to be a new lex mercatoria, they first of all have to meet the characteristics of a true law merchant.[90] Recalling the main features of the substantive law merchant of the Middle Ages,[91] one would therefore have to expect the Principles to be transnational, based on a common origin, a faithful reflection of the mercantile customs and particularily responsive to commercial needs.

There is no doubt that the Principles fulfil the criterion of being "transnational" and "based on common origin". The Principles neither belong to any national legal system nor do they reflect the rules and principles of one single national legal order -- instead, they are detached from any national legal context. They were designed to be applicable to international contracts throughout the world irrespective of legal tradition or economic and political environment.[92] The search for legal ideas and principles common to the various national and international legal systems was thoroughly done by means of comparative analysis,[93] and for each article, many different national approaches were considered. This enabled the Principles to root in the Anglo-American "common law" as well as in the civil law tradition. American, English, Continental European, Russian, Japanese and Chinese jurists should find themselves at home in them.[94]

Apart from being transnational and common in origin, the Principles also pay special attention to usages and customs when determining the rights and duties of the parties to each individual contract. Indeed, the openness to usages is even considered as an essential element and underlying idea of the Principles.[95] Art. 1.8 in the general terms of the Principles provides in essence that usages may not only be binding when they have been agreed upon between the parties, but also in the absence of any such agreement.[96] The Principles refer to usages also in several other articles.[97] With this openness to customs and usages the Principles become responsive to new commercial practices, legal instruments and devices developed by the merchant community. This is particularly important for the Principles as written transnational law and as a simply instantaneous reflection of common legal rules. In order to avoid the typical dilemma of codified law, which, with the fixation of the legal rules becomes rather static at the same time,[98] the Principles have to provide a mechanism that maintains its pliantness. This mechanism may be seen in the responsiveness to customs and usages. Hence, the openness to customs and usages keep the Principles as a set of rules flexible in the sense of a "law in action" and thus particulary adaptable to commercial needs.

However, there are also other features that support the adaptability and suitability of the principles to cross-border trade. One of them is the aforementioned favor contractus,[99] according to which the rules aim at preserving the contract by restricting the number of cases in which its existence or validity may be challenged or in which it may be terminated before time. This idea takes into account that the parties in trade usually do have an interest in upholding the original contractual relationship rather than terminating the contract and -- at the expense of time and money - search for a new contract partner. A good example of this favor contractus-principle is Art. 2.22 (Battle of forms) according to which a contract was validly concluded, even if the parties used conflicting standard terms.[100]

The Principles are also very "user-friendly": They are neutral, short and concise, clearly arranged and with its simple language, explanations and practical examples easily understandable.[101] They not only offer a lingua franca [102] to facilitate negotiations and therefore cross-border trade, but they also render unnecessary the time-consuming search for the foreign legal rules or "general international principles" (in the case that those were chosen as applicable law).

One must conclude that the Principles are not only transnational, based on a common origin and responsive to practices and usages, but also very adaptable to commercial needs and the world of international trade; hence, they fulfil the criteria of a law merchant.

3. The Principles Countering the Criticism Against the Lex Mercatoria?

As Berger has already pointed out,[103] the Principles themselves do not clarify their legal status as possible autonomous lex mercatoria, i.e., they do not expressly determine whether they are to be understood as own independent legal system which can validly be chosen as proper law applicable to a contract, or whether they are merely to be included as part of the contract and hereby not superseding the relevant national law. Information as to the status of the Principles must hence be deduced from their structure, methodology and context.

One of the main points of criticism put forward against the lex mercatoria as an autonomous body of law is that it allegedly lacks the quality of being a law, which is justified with the lex mercatoria not being legitimated by a legislative authority and not having an appropriate methodological base.

As far as lacking legitimation by a legislative organ is concerned, the Principles are not able to and do not aim to refute this argument, because this is an imminent feature for a non-legislative set of rules. However, the argument concerning the "appropriate methodological base" is not striking when referring to the Principles. In order to elaborate the Principles, their drafters chose a functional and comparative method.[104] The method was comparative on one hand, because many different national legal orders were studied and considered which represented all different types of legal systems, such as common law, civil law or Eastern law. Of particular interest were the so called "mixed legal orders" [105] and those that were based on a similar comparative approach.[106] The method was functional on the other hand, because the drafters did not focus on the specific dogmatic instruments, but instead, concentrated on the underlying practical situation behind and the basic idea of the particular national legal order. It was especially in this way, that a bridge was built between the common and the civil law.[107] The method chosen was not only appropriate for this international task to filter common ideas and principles but was also a systematic approach to elaborate a true system.

The second main point of criticism put forward against the lex mercatoria as an autonomous body of law is its alleged lacking quality as a coherent and sufficiently precise system of law.

The Principles, in contrast, show very well features of a coherent and concrete system, in that they provide a code-like structure with a systematic order of general principles and rules, which can be found in most codifications and which corresponds to the general doctrine of legislation. While the modern lex mercatoria so far described consists almost entirely of general principles and hence lacking the real "flesh" (at least from the point of view of the anti-mercatorists), the Principles provide side-by-side general principles and concrete rules. Yet, the general principles fulfil a very important function. On one hand, they ensure a certain openness and flexibility of the body of rules in the individual case and towards changes and developments. On the other hand, they provide a set of values, a guiding thread, which is the base and frame for the Principles to become a systematic order.[108] It is only this set of values that enables an autonomous interpretation and gap-filling from within the system (as provided for in Art. 1.6 (2) of the Principles). Only with this autonomous interpretation an internally coherent and concise body of law can consolidate. Hence, one can rightly say that the interaction of general principles and rules justify the claim of the Principles to be a true and coherent system of law.

Being a coherent system of law, the Principles may become the heart of the modern lex mercatoria in that they can provide the framework for the various complementary elements of the lex mercatoria and at the same time the essence of general principles.

IV. Conclusion

The main results of this essay can be summarized as followed:

1. The longlasting and vivid debate concerning the lex mercatoria as autonomous body of law had somewhat reached a deadlock, because both opposing sides of arguments were incompatible with each other. As much as the commercial realities supported the idea of a lex mercatoria, at least the criticism of vagueness, incoherence and unpredictability seem to be serious objections.

2. With the publication of the UNIDROIT Principles, the scenery has changed. On one hand, being transnational, common in origin, open to customs and especially tailored to the needs of international commercial transactions, the Principles meet all the substantive requirements of a true law merchant. Their autonomous and yet non-binding character is very attractive for the business community.

On the other hand, the Principles also back the cause of the lex mercatoria. Although they do not help to overcome the problem of the lack of legitimation by a legislative authority (a criterion that some consider to be essential for a set of rules to become law), they do counter some of the main objections against the lex mercatoria in that they are based on a legitimating thorough and appropriate methodology and in that they provide a concise and coherent system of legal rules. It is especially the latter, that ensures more predictability and stability and that frees the lex mercatoria from the blame of being an arbitrary palm-tree justice.

3. Yet, whether the UNIDROIT Principles can really qualify as "the new lex mercatoria" or moreover "the heart of the new lex mercatoria" remains to be seen. Two factors seem to be decisive: On one hand, the way in which the Principles are being interpreted and further developed must be uniform and autonomous. And on the other hand, they need to be applied! One main element of the success of the lex mercatoria in the Middle Ages was its general and broad acceptance among the merchant community. Accordingly, for the Principles to flourish as "new lex mercatoria" merchants, lawyers, arbitrators (and possibly also judges) have to incorporate them into their legal activities.

A possible non-recognition or non-enforceability should not be a hindrance: Today, the enforceability of arbitral awards rendered on the basis of the lex mercatoria is almost uniformly accepted [109] -- most national courts will enforce those awards according to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958. Outside arbitration, national courts do not yet apply the lex mercatoria as law governing a contract. However, if judges keep enforcing arbitral awards based on the lex mercatoria (especially those which apply the Principles), they might eventually come to the conclusion that they can just equally apply the lex mercatoria themselves. In that way the lex mercatoria would gain wide acceptance and enter the court scenery through the back door. For this door to be opened, the UNIDROIT Principles might be the key.


FOOTNOTES

* Pace essay submission, June 1998

1. Trakman, The Law Merchant: The Evolution of Commercial Law, 1983, p. 7.

2. H. J. Berman/C. Kaufman, The Law of International Commercial Transactions (Lex Mercatoria), 19 Harv. Int. L. J. (1978), 221 (224.)

3. E. v. Caemmerer, The Influence of the Law of International Trade on the Development and Character of the Commercial Law in the Civil Law Countries, in: Schmitthoff, The Sources of International Trade, London 1964, 88.

4. L. Trakman (note 1), p. 8.

5. E.g., Amalfi Laws (954); the Pisa Constitum (1156, 1160); the Consulato del Mare (customs of Barcelona, 1340).

6. P.W. Thayer, Comparative Law and the Law Merchant, 6 Brooklyn L. Rev. (1936), 139 (141), cited in L. Trakman (note 1), p. 8; for a criticism of the medieval commercial law as being transnational see Oliver Volckart/Antje Mangels, Has the Modern Lex Mercatoria Really Medieval Roots?, Max-Planck-Institüt for Research into Economic Systems, Diskussionsbeitrag 8-96.

7. H. J. Berman/C. Kaufman (note 2), 221 (225).

8. H. J. Berman/C. Kaufman (note 2), 221 (225); C. Schmitthoff, Das neue Recht des Welthandels, 28 RabelsZ (1964), 47 (49); L. Trakman (note 1), p. 8 et seq.; J. Honnold, The Influence of The Law of International Trade on the Development and Character of English and American Commercial Law, in: Schmitthoff, The Sources of International Trade, London 1964, 70 (71); K. P. Berger, International Economic Arbitration, 1993, p. 525 et seq.

9. In England, these were the so called piepowder and staple courts.

10. L. Trakman (note 1), p. 8.

11. T. Plucknett, Concise History Of The Common Law, 5th edn. 1956, p. 660 et seq.

12. Fifoot, English Law and Its Background, 1932, 105, cited in Honnold (note 8), 70 (72).

13. 3 Burr. 1663, 97 Eng. Rep. 1035 (K.B. 1765).

14. E.g., Bills of Exchange Act, 1882; Sales of Goods Act, 1893.

15. See L. Trakman (note 1), p. 24 et seq.; v. Caemmerer (note 3), 88 (90).

16. v. Caemmerer (note 3), 88 (90); A. Kappus, "Conflict Avoidance" durch "lex mercatoria" und UN-Kaufrecht 1980, RIW 1990, 788 (789).

17. H. J. Berman/C. Kaufman (note 2), 221 (227); Honnold (note 8), 70 (73); v. Caemmerer (note 3), 88 (90).

18. C. Schmitthoff (note 8), 47 (58); H. J.Berman/C. Kaufman (note 2), 221 (222); H. Berman /F. Dasser, The "New" Law Merchant and the "Old": Sources, Content, and Legitimacy, in: T. Carbonneau (ed.), Lex Mercatoria and Arbitration, 1990, 21 (22).

19. See M. C. Rowe, The Contribution of the ICC to the Development of International Trade Law, in: N. Horn/C. Schmitthoff (ed.), Studies in Transnational Economic Law, The Transnational Law of International Commercial Transactions, 1982, 51.

20. E.g., Uniform Customs and Practice for Documentary Credits, ICC Publication No. 290 (No. 500 for the 1993 Revision); Rules for the ICC Court of Arbitration, ICC Publication No. 291. For further ICC Publications concerning international trade law see M. C. Rowe (note 19), 51 (59).

21. C. Schmitthoff (note 8), 47 (59); K. P. Berger, Die UNIDROIT-Prinzipien für Internationale Handelsverträge, 94 ZVglRWiss (1995), 217 (221).

22. B. Goldman, Frontières du droit et du "lex mercatoria", 9 Archives de Philosophie du Droit (1964), 177; A. Goldstajn, The New Law Merchant, Journal of Business Law (1961), 12; C. Schmitthoff, Modern Trends in English Commercial Law, Tidskrift, utgiven av Juridiska Föreningen i Finland 1957, 349; C. Schmitthoff (note 8), 47; C. Schmitthoff, The Law of International Trade, Its Growth, Formulation and Operation, in: Schmitthoff, The Sources of International Trade, London 1964, 3.

23. O. Lando, The Lex Mercatoria and International Commercial Arbitration, 34 ICLQ (1985), 747 (754); F. Juenger, The Lex Mercatoria and the Conflict of Laws, in: T. Carbonneau (ed.), Lex Mercatoria and Arbitration, 1990, 213.

24. A. Kappus (note 16), 788 (790).

25. O. Lando (note 23), 747 (748).

26. K. P. Berger (note 8), p. 528.

27. O. Chukwumerije, Choice of Law in Commercial Arbitration, 1994, p. 110; A. Goldstajn (note 22), 12.

28. R. Schlesinger, Research on the General Principles of Law Recognized by Civilized Nations, AJIL 1957, 734 (747).

29. A. Goldstajn (note 22), 12.

30. Apart from the above named O. Lando (note 23), 747; K. P. Berger (note 8), p. 525; H. J. Berman/C. Kaufman (note 2), 221; H. J. Berman/F. Dasser (note 18), 21; B. Goldman, The Applicable Law: General Principles of Law - the lex mercatoria, in: J. Lew (ed.), Contemporary Problems in International Arbitration, 1987, 113; F. Juenger (note 22), 213; A. Lowenfeld, Lex Mercatoria: An Arbitrator's View, in: T. Carbonneau (ed.), Lex Mercatoria and Arbitration, 1990, 37; L. Trakman (note 1), p. 39; A. Kappus (note 16), 788; U. Blaurock, Übernationales Recht des Internationalen Handels, ZEuP 1993, 247.

31. O. Lando (note 23), 747; K. P. Berger (note 8), p. 525; H. J. Berman/F. Dasser (note 18), 21 (22, 23;) H. J. Berman/C. Kaufman (note 2), 221 (274).

32. K. P. Berger (note 8), p. 535.

33. It would go far beyond the scope of this essay to pursue these different streams, for further reference and explanation see K. P. Berger, p. 538 and M. J. Bonell, Das autonome Recht des Welthandels - Rechtsdogmatische und Rechtspolitische Aspekte, 42 RabelsZ (1978), 485 (486 et seq.).

34. O. Lando (note 23), 747 (748 et seq.); K. P. Berger (note 8), p. 526, A. Kappus (note 16), 788 (790); A. Goldstajn (note 22), 12 et seq.

35. B. Goldman (note 30), 113 (114).

36. R. Goode, Usage and its Reception in Transnational Commercial Law, 46 ICLQ (1997), 1 (2); B. Goldman (note 30), 113 (114).

37. See infra.

38. B. Goldman (note 30), 113 (114).

39. P. Lagarde, cited in H. J. Berman/F. Dasser (note 18), 21 (31).

40. See the Principles of International Commercial Contracts (prepared by UNIDROIT) and the Principles of European Contract Law (prepared by the Commission On European Contract Law).

41. E. Gaillard, Trente ans de Lex Mercatoria - Pour une application sélective de la méthode des principes généreaux du droit, JDI (1995), 5 (6).

42. M. Mustill/S. Boyd, Commercial Arbitration, 2nd edn. 1989, p. 80 et seq.; K. Highet, The Enigma of the Lex Mercatoria, 63 Tulane Law Review (1989), 613; F. A. Mann, Introduction II in : T. Carbonneau (ed.), Lex Mercatoria and Arbitration, 1990, p. xix et seq.; G. Delaume, in: T. Carbonneau (ed.), Lex Mercatoria and Arbitration, 1990, 77; O. Chukwumerije (note 27), p. 110; P. Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit, 2nd edn. 1989, p. 146 et seq.

43. P. Schlosser (note 42), p. 153; K. Highet (note 42), 613 (616).

44. Authors in favour of the lex mercatoria have pointed out, that contracts governed by the lex mercatoria are not to be confused with the contrat sans loi, assuming, of course, that the lex mercatoria is a law; see P. Lalive, RDC 1967 I, 649; B. Goldman RDC 1963 II, 480, 29, cited in V. Triebel/E. Petzold, Grenzen der lex mercatoria in der internationalen Schiedsgerichtsbarkeit, RIW 1988, 245 (246).

45. K. Highet (note 42), 613 et seq.

46. A. Kappus (note 16), 788 (790); O. Lando (note 23), 747 (751); K. P. Berger (note 8), p. 526.

47. O. Chukwumerije (note 27), p. 113; P. Schlosser (note 42), p. 150.

48. V. Triebel/E. Petzold (note 44), 245 (246).

49. O. Chukwumerije (note 27), p. 112; M. Mustill/S. Boyd (note 42), p. 81; V. Triebel/E. Petzold (note 44), 245 (247); P. Schlosser (note 42), p. 151.

50. H. J. Berman/F. Dasser (note 18), 21 (23).

51. V. Triebel/E. Petzold (note 44), 245 (247); O. Chukwumerije (note 27), p. 112.

52. It is argued, that they are more a matter of common sense, anyway; see K. Highet (note 42), 613 (627); P. Schlosser (note 42), p. 152.

53. M. Mustill/S. Boyd (note 42), p. 81; K. Highet (note 42), 613 (618); O. Chukwumerije (note 27), p. 112.

54. O. Chukwumerije (note 27), p. 112.

55. F. A. Mann (note 42), xix (xx).

56. W. Park, Control Mechanisms in the Development of a Modern Lex Mercatoria, in: T. Carbonneau (ed.), Lex Mercatoria and Arbitration, 1990, 109.

57. P. Schlosser (note 42), p. 153.

58. H. J. Berman/F. Dasser (note 18), 21 (28); K. P. Berger (note 8), p. 536; F. Juenger (note 22), 213 (216 et seq.).

59. H. J. Berman/F. Dasser (note 18), 21 (28).

60. Ph. Fouchard, L'arbitrage commercial internationale (1965), p. 579 et seq.

61. O. Lando (note 23), 747 (752).

62. K. P. Berger (note 8), p. 536.

63. K. P. Berger (note 8), p. 538.

64. A. Lowenfeld (note 30), 37 (41); H. J. Berman/F. Dasser (note 18), 21 (27).

65. O. Lando (note 23), 747 (755); K. P. Berger (note 8), p. 554.

66. Concerning the reception of the Principles, see M. J. Bonell, The UNIDROIT Principles in Practice: the experience of the first two years, Uniform Law Review 1997, 34; M. J. Bonell, The UNIDROIT Principles of International Contracts: Towards a new Lex Mercatoria?, Revue de droit des affaires internationales 1997, 145.

67. M. J. Bonell, Das UNIDROIT-Projekt f?r die Ausarbeitung von Regeln f?r internationale Handelsvertr?ge (Das UNIDROIT-Projekt), 56 RabelsZ (1992), 274 (276); M. J. Bonell, An International Restatement of Contract Law, The UNIDROT Principles of International Commercial Contracts, (International Restatement) 1994, p. 7 et seq.

68. UNIDROIT Principles of International Commercial Contracts, Rome 1994, Introduction p. viii; M. J. Bonell (note 67), Das UNIDROIT Projekt, 274 (287); M. J. Bonell, (note 67), International Restatement, p. 42.

69. UNIDROIT Principles (note 68), Introduction p. viii.

70. UNIDROIT Principles (note 68), Introduction p. ix; J. M. Bonell, Die UNIDROIT-Prinzipien der internationalen Handelsverträge: Eine neue Lex Mercatoria?, ZfRV 1996, 152 (153).

71. M. J. Bonell (note 70),152.

72. M. J. Bonell (note 67), Das UNIDROIT-Projekt, 274 (276).

73. M. J. Bonell, RDAI 1988, 873 (878).

74. UNIDROIT Principles (note 68), Introduction p. viii.

75. UNIDROIT Principles (note 68), Introduction p. viii.

76. See M. J. Bonell (note 67), International Restatement, p. 54 et seq.

77. Art. 1.1 UNIDROIT Principles.

78. Art. 1.8 UNIDROIT Principles.

79. See among others Arts. 2.11, 2.14, 2.22, 6.2.1 - 6.2.3.

80. Art. 1.7 UNIDROIT Principles.

81. M. P. Furmston, Unidroit General Principles for International Commercial Contracts, 10 Journal of Contract Law (1996), 11; M. J. Bonell (note 67), Das UNIDROIT-Projekt, 274 (278).

82. See International Commercial terms - INCOTERMS 1990, ICC Publication n. 460.

83. See Uniform Customs and Practice for Documentary Credits - 1993 Revision, ICC Publication No. 500.

84. M. J. Bonell (note 67), International Restatement, p. 43.

85. M. J. Bonell (note 67), International Restatement, p. 27; also M. J. Bonell (note 67), Das UNIDROIT-Projekt, 274 (279).

86. Arts. 6.2.2. - 6.2.3. UNIDROIT Principles; example cited in J. M. Bonell, (note 70), 152 (154), also in M. J. Bonell (note 67), International Restatement, p. 29.

87. Comment 2 to Art. 1.6 UNIDROIT Principles.

88. Which is, however, criticised by K. P. Berger (note 21), 217 (218).

89. See supra III.

90. For a criticism of linking ancient commercial law with the modern lex mercatoria, see Oliver Volckart/Antje Mangels (note 6), esp. p. 29 et seq.

91. See supra II. 1.

92. UNIDROIT Principles (note 68), Introduction p. viii.

93. See infra III. 3.

94. Van Houtte, De "UNIDROIT Principles of International Commercial Contracts" en de Belgische rechtspraktijk, TBHR 1995, 348 at 349, cited in K. Boele-Woelki, Die Anwendung der UNIDROIT -Principles auf internationale Handelsverträge, IPrax 1997, 161 (163).

95. M. J. Bonell (note 67), International Restatement, p. 61 et seq.

96. Except where the application of such usage would be unreasonable, Art. 1. 8 (2).

97. See, e.g., Art. 2.6 (3).

98. K. P. Berger, Formalisierte oder "schleichende" Kodifizierung des transnationalen Wirtschaftsrechts - Zu den methodischen und praktischen Grundlagen der lex mercatoria, 1996, p. 192.

99. See also M. J. Bonell (note 67), International Restatement, p. 65 et seq.

100. "Where both parties use standard terms and reach agreement except on those terms, a contract is concluded on the basis of the agreed terms and of any standard terms which are common in substance unless one party clearly indicates in advance, or later and without undue delay informs the other party, that it does not intend to be bound by such contract.", Art. 2.22; this provision is much better suited for commercial reality than Art. 19(2) CISG, its counterpart in the 1980 Vienna Sales Convention.

101. K. Boele-Woelki (note 94), 161 (164).

102. M. J. Bonell, An International Restatement of Contract Law, at 14.

103. K. P. Berger (note 21), 217 (224).

104. K. P. Berger (note 21), 217 (226).

105. E. g., the laws of South-Africa, Scotland, Louisana, Algeria.

106. E. g., the 1963 Commercial Code of Czechslovakia, cf K. P. Berger (note 21), 217 (227).

107. The example of the principle of good faith is described in K. P. Berger (note 21), 217 (225).

108. K. P. Berger (note 21), 217 (233).

109. D. W. Rivkin, Enforceability of Arbitral Awards Based on Lex Mercatoria, 9 Arbitration International (1993), 67 (74).


Pace Law School Institute of International Commercial Law - Last updated September 1, 1998
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