Trans-Lex Administrative Information
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Mustill, Michael, The New Lex Mercatoria: The First Twenty-five Years, Arb.Int'l 1988, at 86 et seq.
Table of Contents
The New Lex Mercatoria: The First Twenty-five Years
The New Lex Mercatoria: The First Twenty-five Years
*FEW readers are likely to welcome an article on the lex mercatoria by an English lawyer. The common lawyer will not look kindly on an addition to the extensive literature on what he may be tempted to regard as a non-subject, having no contact with reality save through the medium of a handful of awards which could well have been rationalised more convincingly in terms of established legal principles. Conversely, a scholar nurtured in other disciplines may well anticipate yet another reactionary response to any doctrine lying outside the tradition of Anglo-Saxon jurisprudence. Perhaps there is a middle course. The auspicious occasion which this volume is designed to commemorate deserves better than a reaction by rote or a routine polemic. The lex mercatoria has sufficient intellectual credentials to merit serious study, and yet is not so generally accepted as to escape the sceptical eye. It therefore seems appropriate to try a fresh approach. Commercial arbitration exists for one purpose only: to serve the commercial man. If it fails in this, it is unworthy of serious study. The commercial man is a conspicuous absentee from the writings on the leer mercatoria, and so indeed is his adviser. One may therefore approach the subject from an angle rather different from the one usually chosen. Imagine that a practical lawyer is retained to advise a client who has become involved in a dispute which may lead to an international arbitration. The lawyer knows enough about modern theory to have heard of the lex mercatoria, and can envisage the possibility that if the matter does come to arbitration, he may find that the arbitrators, whose identities are at present unknown, may at least consider the application of the lex. A conscientious practitioner, he recognises the need to warn his client of this, and seeks to anticipate, and prepare himself to answer, the questions likely to he asked by a businessman who encounters the doctrine for the first time. These are likely to be on the following lines. What is the lex mercatoria? What kind of law is it? When does it apply? Does it enable the arbitrator to decide in equity, according to his own inclinations? How does the lex mercatoria relate to national law? What are its sources.' How are its rules to be ascertained? What are the rules, when so ascertained? We may follow the adviser in his search for answers to these questions, and conclude by asking - as he. must surely ask himself- how the lex mercatoria stands today, and what its prospects are for the future.
I. WHAT IS THE LEX MERCATORIA?
Although the concept of a new lex mercatoria had been foreshadowed in earlier writings,1 systematic discussion of the concept first began to flower in the early 1960., under the stimulus of the London Conference on the Sources of International Trade in 1962:2 hence the title of the present essay. There followed several important treatises, including influential discussions by Professor Berthold Goldman3 and Professor C. M. Schmitthoff.4 The proposals have not by any means passed unchallenged,5 and a lively debate has continued to the present day.
A useful starting-point would be a definition. Unfortunately, there appears to be none which accommodates all opinions as to the nature of the doctrine. The same turn of phrase means different things to different scholars. The following may however serve to give the flavour;
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.6
A single autonomous body of law created by the international business community.7
This phenomenon of uniform rules serving uniform needs of international business and economic co-operation is today commonly labelled lex mercatoria. 8
The customs of the business Community may combine all general principles of law to create a system of commercial self-determination.9
... un droit 'transnational', réceptacle des principes communs aux droit nationaux, mais creuset aussi des règles spécifiques qu'appelle le commerce international.10
Also, from a rather less enthusiastic hand:
. . an anational lex mercatoria or ...hybrid legal system finding its sources both in national and international law and in the vaguely defined region of general to principles of law called "Transnational Law".11
Notwithstanding the absence of any definition commanding general acceptance which is at the same time sufficiently detailed to serve as the focus of examination, it is possible to stare certain propositions which appear to reflect the majority of opinion.
In the first place, the lex mercatoria is "anational".12 This concept has two facets. First, the rules governing an international commercial contract are not, at least in the absence of art express choice of law, directly derived from any one national body of substantive law. Second, the rules of the lex mercatoria have a normative value which is independent of any one national legal system.13 The lex mercatoria constitutes an autonomous legal order.
A clear recognition of the anational character of the lex mercatoria enables a number of misconceptions to be avoided. Thus, the fostering of the lex mercatoria has nothing to do with the harmonisation of international trade law. The aim of the latter is to minimise the differences between the laws of individual nations, so as to provide a stable and uniform basis for commerce. To the mercatorist the laws of individual states are irrelevant, save as a quarry from which to draw the raw materials for generalised rules.
Again, the lex mercatoria resembles in name alone the common body of doctrine the reception of which into various national laws has ensured that in
matters of commerce there is a strong family resemblance between laws of developed trading States. Cross-fertilisation between legal systems has been a powerful instrument for more than two centuries in the elaboration and refinement of national laws. So too has been the adoption of propositions and concepts advanced by influential commentators who command an international breadth of learning. Equally important has been the recognition of trade practices acknowledged as binding, regardless of national frontiers. But the national judge who draws upon this common reservoir of rules and notions does so for the purpose of better fitting his own law to the task in hand, not as a means of applying some other body of rules in preference to the governing national law.14 Lord Mansfield, whose memory is not infrequently summoned to provide common-law credentials for the new doctrine,15 did undoubtedly speak of the lex mercatoria, but I believe he would be astonished to learn that while availing himself of the experience of his special jury and the wisdom of the learned expositors. he was doing anything other than making sure that the English law which he applied to the contract was serviceable, up to date and intellectually sound. The idea that, sitting as he was in the court of King's Bench, it was his duty to set on one side the King's law, and to apply a law which was not the law of any nation, would have been quire foreign to his mind.16
It is convenient at this stage to mention another misconception: namely that the lex mercatoria is in some way connected with, or a reflection of, the notion of transnational arbitration. The latter 17 posits that there exists a category of arbitration which is, or at least ought to be, detached from the procedural laws of the country where the arbitration takes place, or indeed of any other country, excepting only, in some limited degree, the law of the country where the award is sought to be executed. The subject-matter of the transnational doctrine is thus quite different from that of the lex. So too are its theoretical foundations. Not even life most enthusiastic transnationalist could claim that international commercial arbitration is now wholly distinct from national arbitration laws, or that it would be practical to sever all links with such laws, since the arbitral
process does from time to time need the help of the courts. The proponents simply assert that the links should be no greater than are strictly necessary to ensure that, through the coercive powers of the courts, a party who wilfully fails to honour the letter and spirit of his agreement to arbitrate can be brought into line. The theory of transnational arbitration is essentially a statement of practical policy.
The concept of the lex mercatoria is quite different. It is not the positing of an ideal which all concerned should unite to bring about. Of course it is desirable chat the lee mercatoria should be developed and promulgated. Nevertheless, independently of any such endeavour, in the eyes of the mercatorists the lex mercatoria simply exists. It springs up spontaneously, in the soil of international trade. It is conceived to be a growth, not a creation.
Thus the debate on transnationalism is about whether it can and should be brought about. By contrast, the debate on the lex mercatoria is about whether it can and does exist as a viable system. A mercatorist need not be a transnationalist. There are, however, two possible points of contact. In the first place, the premise of the transnationalist theory is that, although an international commercial arbitration must in a physical sense take place somewhere, in the legal sense it takes place nowhere. It therefore cannot have a lex fori, and so cannot be the subject of any national system of conflict of laws, such as would ordinarily be applied as part of the lex fori. This is an interesting idea, which may be said to be reflected in practice: for many practitioners would readily acknowledge that in the small minority of cases where it makes the least difference what law is applied to the substance of the dispute (for most disputes turn on the facts and on the words of the contract), the arbitrators frequently abstain from referring themselves explicitly to the conflicts rules of the country in which they happen to be sitting, but rather proceed to an intuitive choice of the proper law. Whether this is because they are transnationalists at heart, I venture to doubt. I think it more probable that since the conflicts rules of most developed nations are much the same, so far as concerns the choice of proper law, it is not usually worth the trouble of deciding whether to follow one rather than the other.
A more testing question would be whether there is a body of transnational conflicts law which governs matters such as status, capacity, consent, and rights in rein. But about this, the mercatorists can have nothing to say, since the function of the lex mercatoria is to expound the content of the rights and duties of the parties under a contract which is ex hypothesi valid as between them and them alone. Furthermore, in the present context the debate is academic, since the purpose of the conflict of laws is to enable the tribunal accurately to identify the national law which governs the contract. This is precisely antithetical to the premise of the lex mercatoria, which is that the arbitrator's first step is to reject any national law as the governing law.18Admittedly, it would be possible to
have a specialist conflicts system with only one role - namely, that all disputes concerning international trade should, when referred to arbitration, be regulated by the lex mercatoria. But this is not, 1 believe, the drift of the extensive literature on the topic.19
Another possible point of contact between the two theories lies in the fact that transnational law seeks to release tire substantive content of an award from the control of a local court. If put into practice, this will, it is said, enable the arbitrator to make a free choice of norms, unfettered by any national law, and it will thus facilitate the development of the lex mercatoria. This scarcely seems a convincing ground for assimilating the doctrines. Absence of any method of demonstrating that the arbitrator has done wrong does not justify the inference that he has done right, and the release of judicial control is at least as likely to encourage the arbitrator to apply no law at all, 20 as to apply the lex mercatoria.21
One final misconception is that the application of the lex mercatoria is equivalent to a decision in `equity' according to the arbitrator's own personal ideas of justice. This understanding of the doctrine may be at the root of the dismay with which it is still greeted in many circles not only in common law
countries. It does, however seem clear from the writings that the classical mercatorist position is to regard the lex mercatoria as a system of law; and not as an expedient for deciding according to 'non-law'. I will return to this point later.
I now turn to the second of the general propositions which emerge from the literature: namely, that the prime sources of the lex mercatoria are the principles of law common to trading nations and the usages of international trade. These merit separate consideration.
Although the essence of the lex mercatoria is its detachment from national legal systems, it is quite clear from the literature that some, at least, of its rules are to he ascertained by a process of distilling several national laws. The intellectual justification for this process is nowhere clearly described, but it must, I believe, be found in the idea that the rules of the lex mercatoria exist in gremio legis as a complete, albeit inexplicit, and evolving whole; that they are received, at least in part, into individual national laws or are reflected by them; and that by careful analysis the dross of the rigidities, impracticalities, and distinctions imposed by each individual national law can be purged away, leaving behind the pure gold of the underlying international legal order. This rationale seems neither more or less convincing than an English jurisprudential theory to which it bears some resemblance: that the common law is revealed to and by the courts, rather than developed by them.22 Quite apart from this, the concept of the lex mercatoria as being in part a distillation of national laws soon runs into serious practical difficulties. The proponents of the lex mercatoria claim it to be the law of the international business community: which must mean the law unanimously adopted by all countries engaged upon international commerce.23 Such a claim would have been sustainable two centuries ago. But the international business community is now immeasurably enlarged. What principles of trade law, apart from those which are so general as to be useless, are common to the legal systems of the members of such a community? How could the arbitrators or the advocates who appear before them, amass the necessary materials on the laws of, say, Brazil, China, the Soviet Union, Australia, Nigeria and Iraq? How could any tribunal, however cosmopolitan and polyglot, hope to understand the nuances of the multifarious legal systems?24 In published awards the arbitrators occasionally make large claims
about the universality of principles, but these are rarely if ever substantiated by citation of sources. Equally if not more important is the question: How could any adviser hope to predict what a tribunal not yet constituted might make of such a task in the future?
Evidently oppressed by these difficulties, some proponents of the doctrine have somewhat drawn back from the concept of what may be termed a 'macro' lex mercatoria, and have suggested that the law may be one which is 'common to all w most of the states engaged in international trade.25 To some readers it may seem that this solution gets the worst of all worlds. It fatally compromises the appeal of the lex mercatoria as a lex universals. It undermines the intellectual basis of the doctrine, so far at least as this is understood to lie in the presumed intent of the parties to the individual contract, for how can it plausibly be asserted that a party of nationality X has tacitly agreed to submit his relationship with a co-contractor to a generalised law which is inconsistent with the national law of state X? In practice, moreover, the idea seems quite unworkable. If there are two intellectually respectable and firmly established doctrines on a particular issue, one adopted by one group of legal systems and one by another - as does of course, quite often occur, even within the modest horizons of the Western European and common-law systems - how is the arbitrator to know which is adopted by the majority of Stales? Surely not by arithmetic. When the generality of trading nations enters into the calculation, it may verge on the absurd. There may be instances in which, if the data were meticulously examined, a number of solutions would be disclosed, all sustainable and none commanding a majority. True it is that one or two of the very few reported awards have claimed to apply rules of law adopted by the majority of States; but I suggest that in reality this meant the majority of states with whose laws the tribunal was familiar. This cannot be the basis of a workman-like framework for the conduct of business relations.
Perhaps in response to these pressures, another concept has evolved. By contrast with the world-wide horizons of the orthodox doctrine, there has emerged the idea of what may be called a 'micro' lex mercatoria. This is a law merchant generated with specific reference to the individual contract. On this basis, the lex mercatoria need not be the same all over the world. The arbitrator will tend to confine his investigations to those legal systems which are connected with the subject matter of the dispute.26 Thus, the arbitrator will seek out 'au sein d'un petit groupe de systems juridiques', an individual solution to the problem under scrutiny thereby arriving at a partial internationalisation of private law.27 Looked at in terms of the individual dispute, this does provide the
arbitrator and the adviser with a task which is more practicable to fulfil. But what precisely is the nature of this variety of lex? Is it to be supposed that there exists a constellation of pares-laws, Franca-Belgian, Anglo-Dutch, Italo-Hispano-Korean, and so on, from which the arbitrator chooses the one most appropriate to the individual dispute? The idea is surely fanciful. The only alternative28 is that a law is newly minted by the arbitrator on each occasion, with every contract the subject of its own individual proper law. Whatever the merits of this concept, it appears to have no point of contact with the classical lex mercatoria, conceived as a universal and pervasive "arrière-plan"29 underlying every arbitral decision in the field of international commerce.
We may now turn to the second of the primary sources: namely, international trade usage. Here again, there is a risk of imprecision through the use of the same label to denote different concepts. At its widest, usage is simply a practice which is generally followed. So understood it cannot be a source of law or of individual legal rights. It can be such only if the practice is generally followed because commercial men regard themselves as bound to follow it in the absence of express stipulation to the contrary. Nobody could deny that usage in this sense can be an important element in the assessment by a tribunal of the rights and duties created by the contract, either because in a codified30 or inexplicit form it is tacitly incorporated into the contract, or because it has been received into the relevant national law. But there is nothing special about international trade in this respect, nor anything special about arbitration.31 Any worthwhile national court ought to be capable of taking usage into account, without the need to accord to usage the status of a prime element in self-contained system of law.
There is, however, a different form of usage to which some of the proponents have had recourse, namely, the practice of contracting within various trades, on standard forms of contract.32 The mechanism whereby these terms become part of a standing body of law is rarely spelt out. One suggestion is that they express the sense of justice of those who draft and enter into them.33 I confess to some reservations about this proposition. Often, one party to a standard form
contract adopts it because the other party gives him no choice. More important, the form does not, it seems to me, reflect the ideas of anybody as to the justice of the transaction, if indeed this concept has any meaning in the field of commercial transactions negotiated between parties on an equal footing. Rather, the form is designed to serve as a convenient peg on which the parties can hang the specifically negotiated terms, without having to work out all the details of the transaction from scratch. Experienced traders are aware of the general financial balance of the transaction contemplated by the standard form, and know the way in which it distributes the commercial risks between the parties. With this in mind they can negotiate towards agreement on matters such as price, delivery date, insurance, demurrage, and so on. If the standard form is altered so as to throw more obligations or risks on to one of the parties, the negotiated terms will have to be adjusted to restore the balance. The second form will be neither more nor less 'just' than the first.34 It simply calls for a different assessment of the price in the widest sense of the term.35
Furthermore, there are serious practical objections to the use of standard forms as a source of law. Quite apart from the fact that a single institution within a single trade may publish a repertoire of different and mutually inconsistent documents from which the contracting parties may choose the most suitable to reflect the balance of their bargain, there coexist in many trades a number of institutions, each offering its own standard form; and it is, of course, a commonplace that parties alter the standard forms to suit their own purposes. There is thus no guarantee of homogeneity even within a single trade. Moreover it may legitimately be asked why a participant in one trade should be supposed to have consented to have his contract governed by rules drawn from contract forms current in a quite different trade.36
Finally, it must be confessed that the mechanism whereby the use of standard forms becomes a source of law is nowhere clearly explained The simple repetition of contracts an the same terms is as consistent with the exercise of freedom of contract as with subordination to a system of binding norms indeed, far more so, since if the parties to a commodity transaction do not wish
to bind themselves to, say, the GAFTA37 Contract Form No. 100, there is no legal or other institution which can compel them to do so. Moreover, the repetition of transactions in the same form could at most create a group of norms peculiar to the individual trade, thereby creating a network of para-legal systems. This is inconsistent with the theoretical premises of the lex mercatoria, which is that it springs spontaneously from the structure of international commerce - and this is plainly regarded as an indivisible whole.
II. WHAT KIND OF LAW IS THE LEX MERCATORIA?
This question cannot fruitfully be debated without some sort of common ground about what is meant by a law, and what is meant by the lex mercatoria. Since philosophers of law cannot agree about the one, and students of international law cannot agree about the other, the discussion soon becomes clouded. Interesting as it is, the businessman would be unlikely to linger over the question, and lack of space compels the present author to follow suit.38 As Jenks pointed out, the question whether the general principles of law, conceived as a system, can serve as the proper law of a contract depends, not on any preconceived notion of what constitutes a legal system, but on whether they can fulfil satisfactorily in practice the function of a proper law, and are in fact used for that purpose.39 To this the present author would add the rider that the principles applied by the arbitrator must be such that they will be recognised by courts as founding a valid award, for an unenforceable award is not an instrument of law or of commerce. The reader must form his own opinion on the question, but even the most ardent supporter would hesitate to say that the lex mercatoria is yet ready to satisfy these criteria in full.
One facet of the problem might however interest the businessman and his adviser. If the transaction is governed by an international agreement or a standard form of rules which require the arbitrator to choose the 'law' which he deems applicable to the substance of the dispute, is he thereby enabled to apply the lex mercatoria to the exclusion of any national law? For example, is the lex a permissible choice under Article 33(1) of the UNCITRAL Model Arbitration Rules or Article 13(3) of the ICC Arbitration Rules of Article 42 of the World
Bank Convention or Article 7 of the Geneva Convention or Article 28(2) of the UNCITRAL Model Law? The point does not admit of much development, but I suggest that the answer must surely be, no.40 Again, although there is room for difference of opinion,41 the same answer suggests itself where there is a reference to `law' in the contract itself, or in the submission to arbitration.
The juridicial status of the lex mercatoria has another, more troubling aspect. Let it be assumed that whether or not the lex qualifies as a law, it has sufficient solidity to be capable in appropriate circumstances of controlling the rights of the parties; then the question must be asked, from where does its normative power arise? Here, I believe, there are two deep-rooted divisions of opinion among the proponents, quite distinct from the differences of emphasis already noted as to the respective weight to be given to custom and the common core of national laws.
The first concerns the method by which the lex comes to govern an individual transaction. One concept is that the lex is a standing body of legal norms, which automatically applies ipso jure to every transaction within its purview, unless expressly excluded. The other is that the lex provides, so to speak, a repertoire of rules available to those parties who, expressly or by implication, choose to incorporate them into their dealings, and who, by the same token, choose to detach their contracts from the national law to which they would otherwise be subject. There is really no common ground between these two perceptions of the lex mercatoria.42
The second discontinuity in mercatorist theory concerns the role of arbitration and the arbitrator. One view is that the lex is a constant presence, applicable or not according to the circumstances of the individual transaction. If it applies at all, it does so from the inception of the bargain, and the sole function of the arbitrator is to uncover it and apply it to the dispute in hand. The alternative opinion is that the lex mercatoria reflects an economic order of which international arbitration is an indispensable element. In making his award, the arbitrator does not simply expound a lex mercatoria which is already there, albeit inchoate; but rather creates new rules, which he then applies retrospectively to the original bargain. Yet further away from the first concept is the notion that, in the absence of established norms, the arbitrator exercises a creative function, acting as a social engineer.43
It is plain that these appreciations of the lex mercatoria have little in common. This may be illustrated by assuming that an international arbitrator is faced
with a previous award which decided precisely the question of law which is brought before him. If the arbitrator's function is simply that of an exponent, then the second arbitrator need do no more than pay appropriate respect to the reasons of his colleague, without being obliged to arrive at the same decision. If he thinks fit, he is at liberty to hold that his predecessor misunderstood the lex mercatoria. Again, at the other extreme, if the first arbitrator has exercised a creative function as a social engineer, his successor can fairly regard him as no more than a part of the self-regulating mechanism of the contract under which he acted, and can thus feel free to exercise the same function, in a different sense, under his own contract. But if the intermediate theory is correct, an award which enunciates a new rule thereby adds to the corpus; arid since the lex is conceived to be a binding law, the subsequent arbitrator must apply it, whether he agrees with the conclusion or not.
These examples may serve to explain why the present author has been driven to the conclusion, after a study of the literature, that the theoretical foundation of the doctrine has not yet been made explicit. Thus far, the number of awards in which the arbitrator has set out to apply the lex mercatoria has been so small that the theoretical problems have been of little practical significance. But if the lex mercatoria is to assume the role in a world which its proponents claim for it, there must be a clear consensus about what the label actually means; for otherwise there will be a risk of that inconsistency and uncertainty which is fatal to the efficient conduct of commerce.
III. WHEN DOES THE LEX MERCATORIA APPLY?
Given the weight of analysis to which the lex mercatoria has been subjected, it is surprising how little has been done to identify the criteria which distinguish those transactions which are governed by it from those which are not.
One matter is treated by commentators as axiomatic: namely, that an express agreement to apply the lex mercatoria will and must be honoured by the tribunal, as well as the parties, and that such an agreement may take the form of a reference to, say, the general principles of law recognised by civilised nations or to the usages of international commerce.44
In the absence of express consent, it is generally held45 that the arbitrator should proceed by three stages, asking himself first whether the application of any national system is appropriate; then, if not, whether he should proceed by
amiable composition or by the application of anational rules; and finally, if the latter, what anational rules exist and are relevant to the dispute. Various groups of factors have been regarded as relevant to this process.
The first group concerns the parties themselves. Clearly, the fact of their having different nationalities is important, and perhaps indispensable. Their character is also material, since it is easier to hold that the lex mercatoria, or that variant of it known as 'the general principles of law', is relevant if one of the parties is a sovereign State or an entity under immediate State control, especially in those cases where the proper law of the contract, according to the orthodox conflicts rules, would be the law of the State.46 It is also said to be significant if one of the parties has a 'transnational' character, apparently because such parties are to be regarded as existing in free space, detached from national allegiances, and hence especially apt for subjection to a system of law which is similarly detached.47
Other indicators relate to the nature of the transactions. It is said to be significant, and perhaps conclusive, if the transaction has an 'international character'. Apart from the obvious rose where the parties are of different nationalities, it is not clear what this expression implies.48 Is a contract between private parties of the same nationality for the carriage of goods from one country to another or for the performance of services abroad of an international character sufficient to make the lex mercatoria applicable in a case where, according to ordinary principles, the law of one of the two countries would be the governing law? The literature does not develop the question.
The subject-matter of the transaction may also be relevant. It is plain that many authors instinctively picture international arbitration as concerned with disputes under complex contracts, negotiated ad hoc, for the execution of major engineering or similar projects over a substantial period of time. This is perhaps natural, since the attention of mercatorists has tended to focus on
awards springing from ICC arbitrations or from ad hoc arbitrations, of considerable size and duration. These arbitrations, which are not typical of international commercial arbitration as a whole, are more readily accommodated within the concept of an isolated autonomous legal system than the far more numerous arbitrations arising front everyday informal commercial transactions. Yet it seems that even the latter are regarded as being subject to the lex; for although the much discussed ICC Award No. 2291,49 which concerned just such a transaction, has been described as particularly ambitious as regards the manner of reasoning, 50 there is no suggestion by the commentators that the tribunal should never have been thinking in terms of the lex mercatoria at all. This seems far removed from practical reality. Disputes concerning sale and transportation are being arbitrated by the thousand every year, and lute present author has never heard of any instance in which it has even been suggested, let alone decided, in any such arbitration held in the common-law world that in the absence of express provision the dispute should be referred to an anational system of law.
Another group of indicators relates to the terms of a contract. This is certainly understandable in so far as the application of tire lex mercatoria is taken to rest en express or implied consent; but it is less easy to comprehend when the law is said to apply because the transaction is effected within the matrix of the legal order constituted by international commerce, for the transaction either is, or is not, of a type falling into this category, and its terms as to jurisdiction and so on should be immaterial. Be that as it may, the presence of a clause of amiable composition is conceived to he material, for reasons which will he mentioned below; it has also been suggested in the literature that the inclusion of an arbitration clause or the choice of an international tribunal51 or of a clause referring disputes to an international arbitration centre52 are pointers towards the lex mercatoria. If this is right, then international arbitrators have been mistaking their functions, day in, day out, for many years.
Again, it has been suggested53( that the absence of a choice of law clause is an indication that the patties wish to apply an anational system, apparently because it shows that the parties could not agree about which systems should govern. This striking proposition ignores the possibility that the choice of a national law was so obvious as not to be worth mentioning, or that the parties never thought about the matter at all. Moreover, even if the parties had in fart disagreed, there seems no warrant for inferring unanimity in favour of ruling out all potentially relevant national systems and substituting an anational system of which only the smallest minority of businessmen can ever have heard.
These are the factors which are said to be material to an arbitrator's decision to set aside national law, to direct himself towards a system of law rather than a free equity, and to find that system in the lex mercatoria. Unfortunately, it is not explained in the literature how he is to perform this operation, and in particular, how much weight is to be attached to the individual factors. The mercatorists can fairly respond that there is no mechanical process for arriving, by way of the conventional conflicts of laws, at a choice of the governing law; and that indubitably a decision on this issue may be finely balanced and susceptible to differing conclusions. Nevertheless, the general nature of the exercise to be performed is comprehended well enough. Looking for the `closest connection', or some local variant, may be difficult to perform but it is not difficult to understand. By contrast, the process for deciding when and when not to apply the lex mercatoria seems never to have been clearly spelt out.
Two more points are important. The first concerns the application of the lex mercatoria in cases where there is no arbitration clause and The dispute necessarily falls to be decided by a national court. It appears to be taken for granted that an express choice of the let mercatoria would be effective in such a case. This may be overoptimistic, for it cannot he assumed that a national judge will be permitted by local law to enforce such a choice; or will even know how to do so. There appears to be little trace in the literature of attempts to apply the lex in national courts.
If this does, however, happen the question will arise whether the national judge ought to apply the lex mercatoria to the exclusion of whatever national law would otherwise be regarded as the proper law, even in the absence of an express choice, in those instances where it would have been applicable if the contract had contained an arbitration clause. (By this I mean the lex mercatoria applied directly as a body of anational law, rather than a series of trade customs carried into a contract via the proper law.) It is disappointing that this problem has been so little addressed for it discloses the existence of a fundamental uncertainty about the theoretical underpinnings of the doctrine. If application
of the lex to the individual contract is seen as a matter of implied consent, then the relative importance of the arbitration clause becomes crucial, for if it is conclusive or near conclusive evidence of a wish to apply the lex, then it might be said that its absence is equally significant; so that instances in which a national court should give effect to the lex must be non-existent or at best rare. Again, if the lex applies independently of consent to all transactions falling within its purview, one must ask whether a contract without an arbitration clause is within its purview. This in turn raises the question whether the left is generated by, and is an integral and necessary part of, the societas mercatorium; or whether it is generated by, and is an integral and necessary part of, international commercial arbitration: two entirely different matters. These uncertainties will have to be resolved before the lex can present itself convincingly to the business community, which can hardly be expected to accept it as a substitute for the existing regime in the absence of an explicit formulation of precisely what it is.
Finally, it must be noted that the lex mercatoria has not yet laid claim to the whole territory of potential disputes arising from international commerce. Thus: (i) there appears to be no instance in which the lex has been invoked in a case of pure delict: (ii) the lex has rarely been applied where the issues are those of consent, fraud in the making of a contract, and so on; (iii) the lex has not, as far as the present author is aware, ever been credited in the literature with a power to create rights in rem, valid as against third parties - for example, by way of a transfer of title of corporeal assets, or pledge, or the creation of a monopoly such as patent or copyright. This is explicable, and indeed inevitable, if the lex is regarded as applicable only by express or implied consent, but is harder to understand if it is merely a reflection of the international commercial organism. Moreover, once it is accepted that the lex may on occasion have to be applied to some aspects of a dispute, whereas national law is applied to others, the practical attractions seem less apparent.
IV. DOES THE LEX MERCATORIA EMPOWER THE ARBITRATOR TO DECIDE IN EQUITY?
Much of the unease about the lex mercatoria stems from the idea that it frees the arbitrator to apply his own unfettered standards of justice to the individual case. The fact that this misconception is so widespread is due in part of the ambivalence in much of the literature about the relationship between the lex mercatoria and the concept of amiable composition,54 a concept which is itself hard
for the common lawyer to grasp.55 Nevertheless, a misconception it undoubtedly is, at least by classical mercatorist standards.56 The lex mercatoria is a lex, albeit not yet perfected. It creates norms which an arbitrator must seek out and obey in every case to which the lex applies. Whether the reason for its application is understood to be an express or implied agreement between the parties, or the concept that it forms the essential juridicial context of the bargain, there is no room here for the arbitrator to impose his own ideas, unless of course they happen to coincide with the rules of the lex mercatoria: for if he does so, he falsifies the transaction. Naturally, everyone hopes that the lex mercatoria will in every case yield a solution which will seem fair to all. But even if this expectation is disappointed, the lex mercatoria must still prevail; otherwise it would not be a law. Thus, since the prime maxim of the lex mercatoria is that pacta sunt servanda; an arbitrator who smoothes the corners of a contract which seem to him too sharp is not complying with his mandate.57
More difficult is the reciprocal relationship between the two concepts. It has been said58 that an agreement to make the arbitrator an amiable compositeur enables, even if it does not require, the arbitrator to take note of the lex mercatoria. To an outsider, this seems strange. The essence of amiable composition is to dispense the arbitrator from the duty of enforcing any system of law. Yet the lex mercatoria is a system of law. Why should an agreement to amiable composition summon up a reference to lex mercatoria any more than to any other developed system of commercial law? The literature gives no convincing answer.59
Another idea is that the repetition of decisions in equity will generate rules
apt to be applied even by an arbitrator who is not authorised to act as an amiable compositeur.60 In practice, this seems far distant; as scrutiny of the reported awards will disclose. But the theory is also difficult. How can decisions by arbitrators who ex hypothesi are released from the duty of applying the law ever yield a system of law which all arbitrators are bound by?
V. WHAT IS THE RELATION BETWEEN THE LEX MERCATORIA AND NATIONAL LAW?
A hypothetical client is likely to ask how a conflict between the lex mercatoria and any national law which might otherwise have been relevant ought to be reconciled. H is adviser would probably reply that the question has two aspects. First, what solution should the conscientious arbitrator adopt? Second, what is likely to be the attitude of the courts claiming jurisdiction over the matter namely, the courts of the countries in which the arbitration takes place and the country in which enforcement of the award is sought?
On the first aspect, the bluntest question which the client may pose is this: If the contract expressly stipulates a choice of governing law, and if the arbitrator is not an amiable compositeur, can the arbitrator properly apply the lex mercatoria in preference to the chosen law? The answer must surely be an equally blunt no.61 The arbitrator is mandated to decide the dispute in accordance with the contract; and the contract includes an agreement to abide by the denominated law. An arbitrator who decides according to some other law, whether anational or otherwise, presumes to rewrite the bargain. He has no right to do this. However good his motives, he does a disservice to the parties and to the institution of international arbitration.
Most complicated is the situation where the parties have expressly chosen to apply both a national law and some variety of 'general principles of law'.62This does happen on occasion, particularly where one party is a State enterprise. In practice, this rarely creates problems, because most often either the State law63
or the lex mercatoria64 are silent on the crucial question, or the answers given by the two laws happen to coincide.65 Occasionally, however, a hierarchy must be established. Here, the literature offers no clear solution, and there appears to be no reported award where the arbitrators have been forced to make a choice. There is a similar lack of authority in the converse situation, where the contract contains no express reference to a national law or to the lex mercatoria.66This is not surprising. Classical mercatorist doctrine requires the arbitrator to reject the choice of a national law before proceeding to choose the national law (see page 98). A conflict between the two should not arise. This theoretical conclusion appears to be reflected in practice. Those few awards in which the topic is touched upon seem to avoid discussion of conflicts between the lex and national laws, but rather tend to call up concordant national laws as reassurance that the rules of the anational laws have been correctly stated.67
There has, however, been some degree of discussion about the relationship between the lex mercatoria and national rules of ordre public68and between the lex and what has been called international ordre public.69 Regrettably, space does not permit a discussion of this interesting and elusive topic.
The second question concerns the likely reaction of national courts to an overtly anational award. A study of this question; which is difficult enough even when expressed in terms of a single national law, is far beyond the scope of the present essay, and indeed never appears to have been attempted. The question seems scarcely to have arisen in practice but if it had done so, the attention currently given to the world-wide claims of the lex would hardly have allowed it to be overlooked. It is, however, impossible to part from the subject
without mentioning, much more briefly than the author would have wished, three70awards where the issue has come to the surface.
The first was rendered in the arbitration Soc. Fougerolle a. Banque de Proche Orient.71 Arbitrators were authorised to decide what law was to he applied. Without the possibility being mentioned by or to the parties, the tribunal decided the dispute according to the principles generally applicable in international commerce. The Cour de Cassation in France rejected an attack on the award, but it is not clear from the economical reasons given by the court whether the. decision was founded on the principles of contradiction or on the lex mercatoria itself. As a commentator has suggested, it may be unsafe to draw too many conclusions from it.
The second instance is the much debated case of Pabalk Ticaret v. Ugilor/ Norsolor The arbitrators found it difficult to choose between two national laws, and therefore elected to choose neither, applying the rule of the lex mercatoria which requires the parties to act in good faith in the execution of the contract.72 Holding on the facts that one party had abused its position of strength in a manner which had led to the breakdown of the agreement, they awarded damages to the other.73
The award came under repeated scrutiny in the courts of two countries. In Austria, where the award had been made, the Oberster Gerichtshof confined itself to the question of whether the award should be annulled on one of the grounds set out exhaustively in ZPO, Article 595, of which only paragraphs five and six were relied upon These dealt respectively with situations in which a tribunal had entered upon matters beyond those confided to it, and those in which an award violated mandatory provisions of law. As to the first, the court held that an award resulting from an unauthorised application of equity was not an award on matters outside the powers of the tribunal- As to the second, there was no evidence that the application of equity contradicted any statutory imperative of the two laws in question. Thus, it appears that the decision was not an endorsement of the lex mercatoria so much as a recognition of a court's limited powers where a tribunal's reasoning is under attack.74
In France the successful party sought exequatur. It was first granted, then denied, and later the denial was made the subject of cassation, each decision following the fortunes of the proceedings in the Austrian courts. The decision of the Cour de Cassation certainly does lend support to the mercatorists, to the extent that the court did not repudiate the notion of the lex mercatoria, which would have furnished a short answer to the problem. Whether it amounts to a vindication of the lex, as has been claimed, is an altogether different matter; and it may be noted that Professor Goldman, amongst others, has expressed the opinion that it does not go so far.75
The third decision, arising from a dispute between Deutsche Schachtbau und Tiefbaugesellschaft mbH and The Government of Ras al Khaimal, will be welcomed by mercatorists, and seems likely to be the subject of extensive academic discussion. The circumstances were as follows.
An agreement relating to exploration fur oil and gas was made between a government and a government oil company on the one hand, and a consortium of companies registered in various countries on the other, upon terms which included an ICC arbitration clause providing for the arbitration to be held in Geneva. Subsequently the government and the oil company declined to continue performance of the agreement, contending that it had been induced by misrepresentation. The dispute which then arose was submitted to arbitration. The government side took no part. In due course terms of reference were formulated, stating a number of issues for decision. The second was: 'What body or bodies of substantive law should be applied by the al tribunal?' Ultimately, the arbitration was decided on the facts, the arbitrators holding that the alleged misrepresentation was not established and that there was no other ground for holding that the agreement was invalid. As the arbitrators themselves said in their award (IC C No- 3572) 'the choice of the law to be applied to the agreement is of little significance; if any, under the prevailing circumstances'. In spite of this the arbitrators went on to express a choice, presumably because they felt obliged to do so by the terms of reference. Rejecting the law of the state where the agreement was to be performed they held that internationally accepted principles of law governing contractual relations were 'the proper law'.
Understandable as it was, the election to include in the award a reference to international principles which had no bearing on the outcome of the dispute proved to be unfortunate, since the oil company relied upon the choice of these principles as a ground for resisting enforcement of die award in England, thus postponing the time when the sums awarded would be recovered.
When it was discovered that the oil company might have assets in England,
various proceedings took place, including in particular a summary application to the Commercial Court, to enforce the award in the same manner as a judgement. This was granted. Subsequently there was an application to the same court to set the order aside oil the grounds that it would be contrary to public policy for the court to grant enforcement, where the principles applied by the arbitrators were so uncertain. This application failed. The oil company appealed to the Court of Appeal, and failed again.
This is an important case for an English lawyer, as regards both the recognition by the court of a doctrine of competenz competenz applicable under the lex fori, and also the application of a narrow view of English public policy. Tile significance so far as regards the lex mercatoria is, however, substantially less than might at first sight appear. The starting-point of the judgement was a decision that the agreement to arbitrate was governed by the law of Switzerland. Since the oil company did not participate in the arbitration, there had been no contest on the propriety of a choice of general principles under that law. The company had not sought to set the award aside in Switzerland, nor did it offer any evidence to contradict the expert evidence of Swiss law tendered by the claimants to the effect that the general principles were a valid choice under the ICC choice of law clause. Thus, the English court could accept that the decision to apply the general principles was a permissible performance of the arbitrators' mandate under the choice of law clause according to both the lex fori and the lex causae. Against this background there was nothing in English public policy to preclude enforcement of the award in England.
Thus far, the import of the decision is clear, and it must greatly hearten the mercatorists. The wider implications, so far as concerns English law, will require careful analysis. As an immediate reaction. the present author would venture the following very tentative observations.75b
The case was not concerned with transnationalism. The claimant's evidence proceeded on the assumption that Swiss law was the lex causae. Nobody suggested that there was no national lex causae.
Although the judgement contains a discussion of two English decisions on the effect on a contract of including various types of 'general principles' clauses, this was probably obiter, since (a) there was no such clause in the contract, (b) English law was neither the lex causae, the lex foci, nor the 'putative proper law', and (c) the issue had not been argued.
The judgement did not address the question whether, under English law, when a contract does not contain any explicit choice of the 'general principles' the arbitrators can validly purport to apply them. This
extremely important question did not arise in the Court of Appeal, and could not have been decided without reference to certain reported cases, not cited in the judgment.
VI. WHAT ARE THE SOURCES OF THE LEX MERCATORIA?
It is, I believe, clear from a reading of the literature, that the proponents of the lex mercatoria do not wholly agree about the sources from which it is drawn, or about the relative importance of those sources which they regard as admissible. There is a wide gulf between those who look (for example) to sources such as standard form contracts and those who seek to distil the common features of national commercial law. Nevertheless, an adviser could not begin his task without first having an idea of the sources which the arbitrator might regard as relevant. For this purpose he could usefully have. recourse to a list compiled by Professor O. Lando,76 noting, however, the caution added by that author that it is not possible to provide an exhaustive catalogue of all the elements of the law merchant.77 Reduced to its bare headings, this list is as follows:
Public International Law
The General Principles of Law
The Rules of International Organisations
Customs and usages
Standard Form Contracts
Reporting of Arbitral Awards
To this list one must evidently add the public policy of the country in which enforcement of the award is likely to be requested.78
Most of the items on this list are discussed elsewhere in this essay, but brief comments may be added about two of them. With regard to public international law, there is of course no question but that parties can expressly stipulate that their relationships shall be governed in whole or in part by public international law, and this does on occasion happen where one of the parties is a State or a State enterprise- 'the present author finds it hard to see why this fact should entail that the application of public international law in these instances should cause it to become part of an all-pervasive general law of commerce, applying between private parties even in the absence of express agreement; for
the principles which are apposite to regulate the relationship between sovereigns are not a priori germane to the relationship between commercial persons or companies79and in practice, the express incorporation of public international law into ordinary day-to-day trading contracts is, as far as the present author's experience extends, entirely unknown.80
The inclusion of uniform laws - such as the 1980 Convention on the International Sale of Goods - in the list of sources is qualified81by the suggestion that the arbitrator is bound to apply them only when the internal courts of those countries which are connected with the parties or the subject matter of the dispute would be obliged to apply them, although in other cases the uniform laws may act as a guide to the arbitrator. If this is so, we have here another example of a 'micro' lex mercatoria, particularised in relation to the individual transaction.
VII. WHAT ARE THE RULES OF THE LEX MERCATORIA?
81aPlainly, it would be of great practical importance to the hypothetical adviser to know whether in any published work, and particularly in any published award, the view had been expressed that a particular rule forms part of the lex mercatoria. Setting aside for a moment the difficulties of time and access to the literature which the adviser would be likely to encounter, it seems that he would be able to put together a list somewhat on the following lines, as representing a tolerably complete account of the rules which are said to constitute the lex mercatoria in its present form.82
A general principle that contracts should prima facie be enforced according to their terms: pacta sunt servanda83The emphasis given to this maxim in the literature suggests that it is regarded, not so much as one of
the rules of the lex mercatoria, but as the fundamental principle of the entire system.
The first general principle is qualified at least in respect of certain long term contracts, by an exception akin to rebus sic stantibus. 84 The interaction of the principle and the exception has yet to be fully worked out.
There may be a doctrine of culpa in contrahendo.87
A contract should be performed in good faith.88
least unenforceable.89 So too if the contract creates a fictitious transaction designed to achieve an illegal object.90
A State entity cannot be permitted to evade the enforcement of its obligations by denying its own capacity to make a binding agreement to arbitrate, or by asserting that the agreement is unenforceable for want of procedural formalities to which the entity is subject.91
The controlling interest of a group of companies is regarded as contracting on behalf of all members of the group, at least so far as concerns an agreement to arbitrate.92
If unforeseen difficulties intervene in the performance of a contract, the parties should negotiate in good faith to overcome them, even if the contract contains no revision clause.93
'Gold clause' agreements are valid and enforceable.94Perhaps in some
cases either a gold clause or a `hardship' revision clause may be implied.95
One party is entitled to treat itself as discharged from its obligations if the other has committed a breach, but only if the breach is substantial.96
No party can be allowed by its own act to bring about a non performance of a condition precedent to its own obligation.97
A tribunal is not bound by the characterisation of the contract ascribed to it by the partics.98
Damages for breach of contract are limited to the foreseeable consequences of the breach.99
A party which has suffered a breach of contract must take reasonable steps to mitigate its loss.100
Damages for non-delivery are calculated by reference to the market price of the goods and the price at which the buyer has purchased equivalent goods in replacement.101
A party must act promptly to enforce its rights, on pain of losing them by waiver.102This may be an instance of a more general rule, that each party must act in a diligent and practical manner to safeguard its own interests.103
A debtor may in certain circumstances set off his own cross-claims to extinguish or diminish his liability to the creditor.104
Contracts should be construed according to the principle ut res magis valeat quam pereat.105
Failure by one party to respond to a letter written to it by the other is regarded as evidence of assent to its terms.106
This list, incomplete as it may be, seems rather a modest haul for 25 years of international arbitration. The reader must form his own conclusions The following comments may, however, suggest themselves.
First, the reported awards do not in all cases seem to sustain the wealth of commentary based upon them. By no means all of them make explicit reference to the lex mercatoria as an independent system of law. Those instances in which reference is made to commercial usage are equally explicable on the ground that the usage controlled the meaning of the contract, an approach which is just as consistent with national as with anational legal systems. Second, it may be said that 'whilst there can be found an abundance of sweeping formulation of legal principles, these are of little use for legal analysis'.107Third, where the rules are expressed more specifically, they cannot in every case be derived from any world-wide generalisation of national laws.108
IX. HOW IS THE LEX MERCATORIA TO BE ASCERTAINED?
Under this heading, we must examine two distinct problems with which the adviser will be faced. First, how is he to discover the substantive content of the lex mercatoria? Second, how is he to predict, in a case where the relevant rule has not yet been firmly established by a consensus of opinion or by one or more reported arbitral awards what sources a tribunal will deploy when addressing the new issue of principle, and what conclusion it will reach?
The first question has been little addressed in the literature. Yet, mundane as it may seem, it is important in practice -and the practical superiority of the lex mercatoria is advanced by its proponents as the principal justification for its existence. Our hypothetical adviser is not an academic lawyer, established at an institution of learning in one of those European cities where the lex is most at
home. Rather, he is a practitioner, established in a trade centre which may be in any part of the world, possessing such resources of time and knowledge and commanding access to such printed materials as can reasonably be expected of those holding themselves out as competent to advise on matters of international trade in the world-wide domain to which the lex mercatoria lays claim.
Here, the practitioner is likely to run into trouble at the outset. Some of the theoretical analysis is contained in periodicals which, if not available to him in his own country, might be forwarded to him by his correspondents. Assuming that he can read the language in which they are written, these articles will give him a broad idea of the doctrine, but perhaps not a great deal of detail. For this he would have to follow up references in footnotes, which will often be to publications of limited circulation or to works of reference now out of print or to volumes of the Festschrift variety which were printed in restricted numbers and are mostly found in private libraries. Even if he had the time, the practitioner could not achieve a full conspectus.109This being so, he would be likely to look for concrete examples of situations in which the lex mercatoria has been applied through awards rendered in international commercial arbitrations, Here again he would be in difficulties. Thousands of such awards are. made every, year. Some are published under the auspices of certain arbitral institutions,110 but most are not. Moreover, the published awards are almost without exception concerned with the application of national laws.111Few can be claimed as clear examples of the working of the lex mercatoria in practice.
Closer to the point are awards made by tribunals which can be regarded as 'de-localised', assuming this concept to have meaning. How many of these there are is impossible to say; but once again, only a few are published. There have been a few ad hoc awards and ICSID awards and a limited number of awards springing from references conducted under the auspices of the ICC. The practitioner could look these up, but they would not take him very far. The publication of extracts from ICC awards began in Clunet, Journal de droit International, in 1974 and, with some overlapping, in the Yearbook of Commercial Arbitration (YBCA) in 1976. Since then, a total of about 130 awards have been published, some of them dating from the 1950s and 1960s. This is only a small proportion of the total number of ICC awards in which the lex mercatoria might be expected to exert the greatest influence. Of these, not many we even claimed by commentators to have any connection with the lex
mercatoria. Although the number cited is rather greater, the present author believes that not more than about 25 are really concerned with it. Furthermore, as more than one author has pointed out,112the selection for publication is made, quite legitimately, to illuminate some aspect of the doctrine. The practitioner has no way of finding out whether there have been other awards in which the application of the lex mercatoria was raised and rejected, or never raised at all.113 In addition, many reports are heavily edited, in the interests of confidentiality. For the commentator this is no hardship. But the practitioner or arbitrator who is asking himself whether a previous award is one which should be followed in the particular case before him will need to know: (i) the factual details of the dispute: (ii) the extent to which a non-mercatorist approach was advanced by the parties; (iii) the arguments addressed by the parties as to the mercatorist rule to be applied, and (iv) (and very importantly) the steps (if any) taken by the tribunal to inform itself accurately of the national laws from which it proceeded to derive its generally accepted rules. Many extracts are deficient in this respect, and some are so brief as to be almost useless. The same comment may be made a fortiori about unreported awards which are referred to in footnotes or in systematic collections.114
To the academic lawyer these considerations may seem trifling. Either the lex mercatoria is part of all international legal order, or it is not. Either a rule forms part of the lex or it does not. The difficulties which practising lawyers in various parts of the world may experience when trying to search it out cannot alter the position. Nor, it may be said, is it a valid objection to the doctrine as an intellectual construct that lire adviser may find it difficult, and often impossible, to predict whether a tribunal not vet appointed will decide to apply the lex mercatoria; or what kind of lex mercatoria, whether 'macro' or 'micro' or some other kind, it will be; or what sources the tribunal will consider of greatest importance; or what weight will be attached to prior awards on the same question, if any exist and can be found.
All this is true enough. If the contract expressly directs the arbitrator to apply the lex mercatoria, or if he conceives that the circumstances justify him in treating such a directive as implicit, he will find a way of doing so, notwithstanding the fragmentary nature of the norms so far established. But this is only a small part of the story. The purpose of a commercial legal order is to regulate transactions, not awards or judgments. For the businessman, proceedings in court or arbitration are a wretched last resort, to be avoided at almost any cost and in fact they are avoided in all but a minute proportion of cases. What he
requires is a legal framework, sufficient to inform him before any dispute has arisen what he can or must do next. If a dispute does arise he needs to be told whether he can insist or must yield, and how much room he has for manoeuvre. When asking such a question, the last answer which a businessman wants to hear is that it is a good question.115
In the light of all these considerations one may take stock of the lex mercatoria as it stands today by asking. Does it provide the businessman with a set of rules which is sufficiently accessible and certain to permit the efficient conduct of his transactions? Is the lex manifestly superior, in its content and methodology, to establish national systems of commercial law? If so, is its superiority so obvious that it can now be said to have imposed itself, whether by the very fact of its existence or by a notion of implied consent, on the international business community as a whole, and on all transactions in which it is not expressly excluded? In short, has the lex mercatoria stolen the international commercial scene, pushing national laws into the wings?
In each case, the detached observer must, I believe, be driven to answer 'no'. More sympathetically, he might add'. . . or at least not yet'116 What the future holds is hard to forecast. The lex has established a tenacious academic foothold in Continental Europe, and its cause is being vigorously promoted elsewhere. The three cases discussed above are encouraging, even if they do not amount to the explicit endorsement which some have asserted. On the other hand, there appears to be no sign that the lex is gaining a foothold in ordinary day-to-day business, through the medium of an express choice. It has not yet been put to the test by enforcement proceedings in jurisdictions where the most resistance is likely to be encountered. The conscious decision of those who framed the UNCITRAL Model Law to adopt the expression 'the law determined by the conflict of laws rules which [the arbitral tribunal] considers applicable' in Article 28(2), in preference to looser words such as 'the rules of law',117must have been a great disappointment to mercatorists, and, if the Model Law is reproduced on any scale in national legislation, it will be a serious obstacle to the growth of the lex. It may also be sensed that the tide of economic opinion is hardly running in its lovelier. Essentially, the lex mercatoria is a doctrine of laissezfaire. In very many parts of the world it is considered that the exercise of free
consent by individual parties must be subordinated to broader economic and political considerations bearing on international trade.118Furthermore, the disfavour with which 'transnational' groups or corporations are now regarded in some quarters cannot but hinder the general acceptance of a doctrine whose legitimacy is seen, rightly or wrongly, as derived at least in part from the existence of such bodies.
In addition, it is impossible to overlook the change in the character of arbitration which has occurred during recent decades. In the past, it might have been possible without excessive idealism to see arbitration as a vehicle for the pacific settlement of disputes, producing awards which would be honoured either because it did not occur to the loser to do anything else, or because a default would have exposed him to the censure of his peers and to a damaging loss of reputation. We now live in a harsher world. Winning is what matters. Whether because of a change in commercial attitudes or simply because the stakes are so much higher, many arbitrations are now fought as intensely and with as much zeal for taking every available advantage, whether procedural or otherwise, as any action in court.119No longer ran it he taken for granted that awards will be honoured.120In such a climate, one must ask whether the foundations of the lex mercatoria are sound enough to sustain the blasts to which it may be subjected.
I would not wish to end in such a negative vein. Two final suggestions may be more constructive. First, the growth and strengthening of international commercial arbitration; which everyone in the field strives to promote, is not dependent on a solution to the problems here discussed. In most instances, the parties and the arbitrator need never look beyond the contract and the facts to arrive at the outcome of a dispute. There is no call for recourse to law at all; or if there is, the principle is so clear as to be taken for granted. In very many cases the applicable law is nominated by the contract. Even if it is not, and even if the members of a tribunal come from different legal backgrounds, it is rare to find that their instinctive reactions to a situation diverge sufficiently to demand a formal appraisal and resolution. If a contract appears insufficiently explicit to furnish a direct statement of the parties' rights, duties, powers, and liberties, then the arbitrators will construe it and fill the gaps in it by recourse to their
own knowledge of how commerce works in practice, and of how commercial men in the relevant field express themselves. Whether an arbitrator who approaches the matter in [his way feels it necessary to employ the lex mercatoria or some established technique of a national system, such as the implication of a term, or whether he does not rationalise what he is doing, but simply goes ahead and does it, is unlikely to make any difference in all but a small minority of cases. What is important is that the arbitrator should keep constantly in mind that he is concerned with international commerce, with all the breadth of horizon, flexibility, and practicality of approach which that demands. In keeping these features constantly in the public eye, the mercatorists perform a most valuable function.
Finally, the person whose interests lie at the heart of the lex mercatoria as of all commercial arbitration, is the businessman. All the debates proceed upon rival assumptions about his opinions and wishes on this or that topic. Yet all the literature is written by lawyers. Perhaps the tune has now arrived for the contestants to call a truce, and for the businessman to speak for himself.121
FootnotesReprinted by consent, with minor amendments, from Liber Amicorum for Lord Wilberforce, OUP (1987).
eg Professor Jessup, Transnational Law (1956), in which the word "transnational" appears first to have been put into circulation.
Proceedings collected and edited by C. M. Schmitthoff as Sources of International Trade (London,1964).
Frontiéres du droit et lex mercatoria, 9 Archives de philosophie du droit (1964), 177 (hereafter Goldman, Frontiers). The concepts and the problems to which it gives rise are here exposed with such moderation and felicity of expression that this study remains essential reading today, notwithstanding the wealth of writing which has succeeded it.
Notably in Sources of International Trade, supra n.2, and 'Das neue Recht des Welthandels', 28 RabelsZ, 47 (1964). Among other significant contributions, mention must be made of Ph. Fouchard, L'Arbitrage commercial international (Paris, 1965), esp. Articles 604 ff, Ph. Kahn, in Festschrift Schmitthoff (Frankfurt, 1973), echoing earlier work in La Vente commerciale internationale (Paris, 1961); E. Loquin, L'Amiable Composition en droit comparé et international (1980); Goldman, 'La Lex Mercatoria dans les contrats et l‘arbitrage internationaux: Réalité et perspectives', ; 'Clunet Journal du droit international, 475 (hereafter Goldman, Réalité et perspectives.), and also in Contemporary Problems in International Arbitration (1983) (hereafter, Contemporary Problems);a series of commentaries by Y. Derains on International Chamber of Commerce arbitral awards, published to Clunet, from 1974 onwards, and also 'Le statut des usages. du commerce international devant les jurisdictions arbitrales',  Rev. Arb. 122; and interesting summary of unpublished awards in J. Lew, Applicable Law to International Commercial Arbitration (New York, 1978); a seminal study of the topic to its relation to the conflicts of laws in P. Lalive, 'Les Regles de conflit de loi applicable au fond du litige,  Rev. Arb., 155; Schmitthoff, in Commercial Law in a Changing Economic Climate, 2nd ed.,(1981),18ff; M Bonnel, in UNIDROIT New Directions in International Trade Law, (1977). More recently, there have been studies by O. Lando, 'the Lex Mercatoria in International Commercial Arbitration', 34 ICLQ 747; B. M. Cremades and S. L. Plehn, 'The New Lex Mercatoria and the Harmonization of the Laws of International Commercial Transactions',  Boston Univ. ILJ 317; W Lorenz, Festschrift für Karl H. Neumeier (1986): E. Loquin, Apport de la jurisprudence arbitrale: L'Application de regles anationales (Paris, 1986), (hereafter Loquin, Apport); P. Lalive, Transnational (or Truly International) Public Policy and International Arbitration: Proceedings of the ICCA New York Conference (1986) (hereafter Lalive, ICCA); Indispensable to the enthusiast is the collection of essays in Le Droit des relationes économiques internationales: Ètudes offerts a Berthold Goldman (Paris 1982) (hereafter Ètudes Goldstein).
Amongst the writers who have questioned the mercatorist position are F A. Mann, P. Schlosser, F.-E. Klein, and P. Lange. Since the purpose of this essay is to examine that position, rather than attack it, I have not quoted extensively from the critics. They do, however, seem to me to have landed some powerful blows.
Goldman, Contemporary Problems, 116.
Cremades and Plehn (supra n.4), 324.
N. Horn, Introduction to The Transnational Law of International Commercial Transactions (1984).
W. L. Craig, W. W. Park, and J. Paulsson, International Chamber of Commerce Arbitration (Paris, 1984), Article 35.02.
Goldman, Frontiers, 1984.
H. A. Grigera Naón, The Transnational Law of International Commercial Transactions (supra n.8), 89.
The term "règles anationales" was, it is believed, coined by P. Fouchard in L'Arbitrage (supra, n. 4), passim.
This is a paraphrase of principles stated by several authors, and may not be entirely accurate. Loquin, Apport, expresses the second part of the principle by saying that the rules of the lex mercatoria "echappent à l'emprise de tout ordre juridique étatique".
The point that when the old lex mercatoria was incorporated into the national laws of Europe it ceased to exist as an international system of law is very clearly made by C. M. Schmitthoff in Commercial Law in a Changing Economic Climate (supra n. 4), 18 ff.
As Huldsworth has pointed out (History of English Law, Vol. 5, p. 79). the manner of development of English commercial law, and hence, of the numerous common-law systems which have sprung from it, deferred substantially from the contemporaneous evolution in the cities of Continental Europe. It is, I believe, unwise to found any generalisation upon it or to draw any modern parallels.
The great contribution of Mansfield was to bring a new depth of learning in the common-law , which had hitherto been insular and uninformed.
Some reflections by the present author on transnational arbitration may be found in Current Legal Problems (1984).
See Goldman 'Réalité et Perspectives' 492.
This is not intended to be dismissive of what is an interesting and difficult practical problem. There is an extensive literature, led by Lalive, 'Les Règles de conflit"(supra, n.4). Some writers advocate a cumulative application of potentially relevant rules of conflict. This will usually yield the "closest connection'" test or something like it. But the arbitrator may feel. when looking for the presumed intention of the parties. that this is not enough - for example, where one party is a sovereign State, and where the closest connection rule would yield the law of that State. The arbitrator might conclude that one party could not have intended that the other should have the power unilaterally to change the governing law. (See the arbitration Sapphire v. NIOG and note J.-F. Lalive (1984) 13 ICCJ 987, 1011) But there is nothing transnational or mercatorist about this. A national judge might well take the same view. There are several relevant awards, including some made under the auspices of national rather than avowedly non-national institutions. These can be found in successive editions of YBCA. Among the ICC awards are some in which the arbitrators proceeded directly to a choice of law: e.g. 1717, Clunet (1974) 890; No. 2129; 2 YBCA 219 No. 2886, Clunet (1978) 991; No. 3380, Clunet (1983) 897; and a number of unreported awards in Derains, (:Inner (1977) 949. In others, the arbitrators have gone through a more orthodox procedure: e.g. ICC No. 2735, Clunet (1977) 947; No. 1455 3 YBCA 215; BP v. Libya 5 YBCA 143; No. 1598 3 YBCA 216; No. 2637 2 YBCA 153. Sometimes again, the arbitrators apply general principles, but check the result against the lex fori as in No. 2583, Clunet (1979) 950. On other occasions the arbitrators have decided that since the two competing laws are the same in all material respects, there is no need to make a choice: e.g. No. 2272, 2 YBCA (1977) 151. I suggest that this is an example of Occam's razor, not the lex mercatoria.
Loquin has suggested that the absence of a general requirements of reasoned awards in English law permits clandestine amiable composition (L'Amiable Composition, cited by Cremades and Plehn, (supra n. 4) 333). Experience suggests that this occasionally happens, but it should not do so unless accords with the wishes of the parties. A theory cannot gain credence from the fact that arbitrators may be able to act contrary to mandate without rebuke. (The question as to whether an award by an arbitrator who has purported to act as an amiable compositeur or to apply the lex mercatoria in the face of express or implied agreement contrary will be susceptible to interference by the local court is a complex issue of municipal law beyond the compass of this essay.)
See Cremades and Plehn (supra, n.4),85.
At first, it seems altogether more in accordance with real arbitral life to envisage the arbitrator as proceeding directly and often tacitly against an assumed background of general principles. See e.g. Goldman "Frontiers",183. But in the end this surely means no more than that the arbitrator is intuitively generalising form his own, possibly imperfect, experience of the major systems of commercial law.
So stated, in relation to the principle in question, in ICCA Award No. 3844, Clunet (1982) 978.
In the literature, the use of legal encyclopaedias is sometimes advocated. I suggest that these are usually worse than useless for this particular purpose, unless the reader is guided by someone with direct knowledge; a little learning is indeed a dangerous thing. Anyone with practical experience of international disputes must acknowledge the difficulty of making an accurate assessment of the law of only one unfamiliar legal system, absent the kind of prolonged and expensive expert guidance which would be quite out of the question if dozens of different laws had on be assimilated.
Lando 'The Lex Mercatoria", (supra, n. 4). So also ICC Award No. 2583, Clunet (1977) 950 "... Admis commumément de la plupart des pays".
Lando, 750 and also 756.
Fouchard, L'Arbitrage, (supra, n. 4), 424.
An intermediate solution has been proposed whereby the lex is derived from the national laws of countries in various groupings, such as the EEC and Comecon; see Matrey, Lib. Am. Sanders, 244. Unfortunately, one has only to look at the diversity of laws within the EEC to see that even this is likely to be too ambitious- for the time being, at least.
Goldman's expression in "Frontiers", p. 183.
As e.g. in the case of INCOTERMS.
Article 7(1) of the European convention, Article 33(3) of the UNCITRAL Rules, Article 13(5) of the ICC Rules, among several others, require trade usages to be taken into account. But the position would surely be just the same without them.
A reading of Prof. Goldman's published works on the topic indicates that this scholar would attach particular importance to standard form contracts.
See e.g. R. David, Arbitration in International Trade(Deventur,1985), 352.
In the days when the shipping industry was more varied than at present, and the standard forms were more numerous, some forms were regarded as owner's forms, others as charterer's forms, to reflect the way in which the risks were distributed. They simply called for different assessments of freight and other financial incidents. I doubt whether it crossed anybody's mind that one form was more 'fair' than another.
This point often escapes those who, under the auspices of international agencies, have urged changes in international legislation to favour importing countries (or, sometimes, exporting countries). They overlook the fact that in the commercial world something is rarely had for nothing. For example, if carrier bears more of the risks, the freight charges ultimately borne by the importer will have to be increased to reflect the extra cost of the carrier's liability insurance. One basis for the contract is no more fair than the other.
The point is clearly made by P. Lagarde in Études Goldman.
The Grain and Feed Trade Association Limited of London, the successor to the London Corn Trade Association, whose standard forms have not infrequently been called up in the literature as exemplars of this particular source of the lex mercatoria.
There is a wealth of literature on this subject. It was addressed at the very beginning by Goldman, in "Frontiers", with conspicuous moderation and realism. More recently there have been penetrating analyses by J.-D. Bredin and P Lagarde, in Études Goldman; and the present author has nothing useful to add to these.
In the Proper Law of International Organisations (1962).
As to the Geneva Convention, see L. Kopelmanas, Revue trimestrielle de droit commercial (1957), 895.
As demonstrated by Soc. Fougerolle v. Banque de Proche Orient (1982), Rev. Arb. 183, the decision in which I would venture to question.
The dichotomy is clearly stated by Loquin, Apport, para. 20. The word "spontané" is often used in relation to the first theory e.g. Goldman 'Réalité et Perspectives', 476, ed Contemporary Problems, 114.
The terminology is that of Lando (supra, n. 4), 110.
There seems to be no example of a reference to the lex mercatoria in so many words. Examples of formulae employed in practice may be found in P. Weil, in Études Goldman, p. 387ff. Not all these formulas will serve to call up lex.
Loquin, Apport, Article 13, and Goldman, 'Réalité et Perspectives', 480 ff. Y. Derains proceeds on the same assumption.
Otherwise there is a real risk that the state may change its law adversely to the other party. Whether there is a real need for the lex mercatoria in such a case, or whether sufficient protection can be obtained from the ordre public of the lex fori, is, perhaps, debatable. The mercatorists are certainly on their strongest ground here, but care must be taken not to place too much weight on cases, interesting as they are, such as Sapphire International Petroleum v. NIOC (1984) 12 ICLQ 987, note b, J.-F Lalive, and also at 1011; Liamco v. Government of Libya (1981) 6 YRCA 89; Government of Kuwait v. Aminoil (1982) YBCA 71; and International legal Materials (1982), 976-1053, for the terms of the contracts or the submissions expressly opened up the possibility of looking beyond the national law. Moreover, there scarcely seems enough consistency of decision even within this small group of cases to create much confidence on the existence of universally accepted principles. (Note also the refusal in the last-mentioned case to apply a suggested "lex petrolia") The "Pyramids" case, SPP (Middle East) v. Arab Republic of Egypt, ICC no. 3493, 9 YBCA 111, is however, close to the mercatorists' point.
This is not the place to debate the concept that there exist types of corporation or group which can properly be assigned to a separate category, labelled 'transnational', which deserve and automatically obtain the benefit of a special legal regime, more flexible and practical than ordinary national laws.
Loquin, Apport, Article 5, quoting P. Kahn, speaks of relations "internationales par nature. . . parce, que dés leur origine, en fonction de leur objet, elles ne situent pas dans un cadre étatique.
Clunet (1976) 989.
Goldman, 'Réalité et perspectives'. The attention given to this award does perhaps suggest a certain shortage of raw material in the mercatorists' terrain. The case is rather economically reported, but it appears to be one which the arbitrators could have decided by reference to the terms of the contract, the facts, and some commercial common sense, without reference to any national law, still less the lex mercatoria.
Loquin, Apport, Article 19; Goldman, 'Réalité et perspectives', 480 ff. Since few arbitration clauses nominate the arbitrators or specify the latters' nationality in advance, it is evidently assumed that where the parties are of different nationalities and each has the right to nominate an arbitrator, they will always choose someone of their own nationality, thus making the tribunal multi-national This assumption is not justified, since the great majority of commodity and shipping arbitrations, including those conducted and ad hoc, the nominated arbitrators are of the same nationality as each other.
Loquin, Apport, Article 27, citing unreported ICC award No 150 These criteria are not, of course, the same. It is not clear when an arbitration centre ranks as international for this purpose. Would the Society of Maritime Arbitrators or GAFTA, whose clients are mostly foreign, come into this category ?
Loquin, Apport, Article 19: Goldman, 'Réalité et perspectives', 480 ff.. citing ICC Nos. 1641, 2291, and 2583.
Y. Derains moderately observes that the relationship between the two concepts is not free from ambiguity; see Clunet (1980) 967.
It involves no disrespect to Loquin's authoritative treatise - indeed quite the reverse - to say that, at the conclusion of his meticulous examination, a reader accustomed to other disciplines is left with the feeling that the concept of amiable composition has not yet, even on its own native heaths, been fully brought to hand. (A common lawyer may read with special interest the three recent decisions of French Courts discussed in  Rev. Arb. 199ff. Some reflections on amiable composition, from an English point of view, may be found in Mustill and Boyd, Commercial Arbitration (London, 1982) 605 ff.
See Derains, Clunet (1979) 996, Goldman, 'Frontiers', 184-5, 187; id., Contemporary Problems 110; id. 'Réalité et perspectives', 480. Lando, Contemporary Problems, 110, and also 34 ICLQ 754. The difference between equity and rules of law was clearly stated in Sapphire International Petroleum v. NIDC (supra, n. 46), 1015.
There is a particular risk in those instances in which the tribunal consists of one arbitrator nominated by each party together with a chairman. As P. Schlosser has pointed out (in What is International in the Legal Basis of International Arbitration (Japan, 1984) 101-2), when left a free hand, such tribunals tend to gravitate towards a compromise. This does not necessarily reflect the idea of justice of any individual member, still less what the parties have actually agreed. Significantly, Loquin states that the clause of amiable composition authorises the arbitrator to pronounce an award "d'apaisement".
e.g. Loquin, Apport, Article 577, and Goldman, 'Réalité et perspectives', 480ff.
R. David suggests, in 'Arbitrage et Droit comparé',  Rev. Int. Dr. comparé, 14, that two functions of amiable composition must be distinguished: first, where the parties look essentially for a solution by conciliation, and second, where they wish their disputes to be decided in conformity with law, but with a law which is not a national law. If so, some means must be found of deciding which of these antithetical solutions the parties to any given contract have actually chosen.
See e.g. Y. Derains, Clunet (1975) 920.
It is possible to find passages within the literature which might be read as indicating a contrary view But there is so much room for ambiguity in the expression lex mercatoria that it would be unsafe to assume that they can read in such an extreme sense.
Such a reference has, of course, nothing to do with trade custom or common forms of contracts.
This was the case in relation to the concessions negotiated before and after the Second World War with states in the Middle East for the extraction of crude oil. The local law incorporated, in the shape of the Majallah, a most refined legal system. But it was one which had nothing to say about mineral rights and petroleum exploitation. There could thus be no conflict between the local law and the additional rules which, as everyone acknowledged, were necessary to make the concessions work. In theory, these rules might be regarded as anational. In practice they were conceived on both sides as having a shape remarkably similar to that of traditional Western European law. (Thus, it is not surprising that when Lord Asquith had recourse to general principles in his renowned Abu Dhabi award, these proved to rest on a few English decided cases) I suspect that it would have surprised the grantors as much as the concessionaires to learn that their contracts were governed by sources as heterogeneous as those called up by the literature on the lex mercatoria.
As will very often be the case, except in so far as it consists of generalities which are unlikely to be in serious conflict with the relevant national laws.
In which event the two laws can live in what Loquin, Apport, Article 16, has called 'peaceful coexistence'.
The problem is touched on from time to time in the literature. See e.g. Lamber Matray, Lib. Am. Sanders, 241 ff and Grigera Naón, The Transnational Law of International Transactions, (supra, 8).
Thus, in the 'Pyramid' case (supra, n. 46) the tribunal proceeded by interpreting Egyptian law as conforming with general principle exemplified in Article 42 (1) of the ICSID convention, and then applying it in that sense. See also ICC No. 2478, Clunet (1975) 925, and No. 3540, Clunet (1981) 914 (amiable composition).
Which laws are to be regarded as relevant for this purpose is nowhere clearly prescribed. If they include the putative proper law, then the arbitrator will have to carry out the conflicts exercise, the avoidance of which is claimed as one of the major benefits of the lex mercatoria. O. Lando suggests ((supra. n. 4), 165) that the arbitrator must also give priority to the mandatory rules of countries closely connected with the contract and to the rules of the country in which the award is likely to be enforced (if the arbitrator can predict which country this will be, which is not always the case).
The concept is developed in a number of interesting writings by P. Lalive including ICCA. Recent treatises by the same author and by Y. Derains may be found in  Rev. Arb. 329 and 375. It is important to note that international ordre public is not the same as the lex mercatoria. If the two conflict, as they may do, ordre public must prevail. See the illustration provided by the 'creole' case, cited in Lalive, ICLA.113.
Some authors would add a fourth in the shape of the decision of the Corte di Cassazione dated 8 Feb. 1982. Although the judgement certainly does contain an excursus on the lex mercatoria in terms which quite clearly assume its existence, the present author cannot read this as forming a link in the chain reasoning which led to the award being upheld. Moreover the supposed rule related to procedure and not to substance, which is the true province of the lex mercatoria.
9 Dec. 1981, Rev. Arb.  183, and note thereon, G. Couchez at 187.
The sum awarded was 800,000 French francs, arrived at ('en équité') without calculation. It is reasonable to speculate on how this sum compared with the costs involved in proceedings to the highest tribunal in the courts of two countries. If the arbitrators had been chosen one national law or the other, rather than the lex mercatoria, this award would have been unassailable. Perhaps the victory of the lex mercatoria, if such it was, had its pyrrhic aspects.
The award is reproduced in  Rev. Arb. 525.
On the Austrian aspects of this litigation, see W. Melis, 9 YBIL 163, and also B. Goldman  Rev.Arb. 407-8.
[l985] Rev. Arb. 438.
The litigation arising from this dispute has now reached the House of Lords, but it is understood that all points here discussed were not debated.
Supra, n. 4.
Quoting Fouchard (supra, n. 4), Articles 575-630, and the same author, 'L'arbitrage intenationale en France après le décret du 12 Mai 1981'. Clunet (1982) 374, 395.
Lando (supra, n. 4), 766. He refers in this context to Article 26 of the ICC Rules of Arbitration, 1976, which requires the arbitrator to 'make every effort to make sure that the award is enforceable at law'.
See M. Virally, in Études Goldman, 981.
As to the relationship between Article 38 of the statute of the International Court of Justice and the lex mercatoria, see Goldman 'Réalité et perspectives' 486, citing A Broches.
Lando (supra, n 1). 749.
The inclusion of this text in the present article when first published has been misunderstood. The author has set out to enumerate the rules which have been claimed in the literature as examples of the lex. He does not suggest that the claims can in every case be sustained, at least if the lex is given its 'macro' connotation: see the footnotes which follow.
I have omitted from this list one or two rules, referred to in the literature, of a procedural nature (such as a rule that the arbitrator has power to adjudicate on his own jurisdiction) since the literature as a whole and the theoretical foundations which it proposes treat the lex mercatoria as a body of substantive law.
So many authors have stated that principle, that citation would be superfluous. It is justly pointed out by M. Virally, in Études Goldman, 381, that pacta sunt servanda is not really a rule on its own. but is merely a reflection of the nature of a contractual obligation. The problem is to decide when the rule admits of exceptions.
The very guarded nature of this proposition is demanded by the uncertain state of the authorities. B. Goldman Clunet (1979), 475, 494, calls it a principle, or at least a presumption. The fact that force majeure and frustration are similar in some respects, but quite different in others , may have misled some arbitrators (see the comments on Cremades and Plehn (supra, n. 4), 342). There is often no problem where a 'micro' lex mercatoria is involved, as in ICC No 1512, Clunet (1974, 908 (India and Pakistan). But on a wider canvas of the decisions cannot command general acceptance. If ICC No. 1703 decides that long-term contracts are subject to an implied right or suspension in cases of force majeure, this is inconsistent with the common law. So too are the 'nombreuses sentences' referred to in Fouchard (supra, n. 4). Article 620. Other ICC awards, including Nos. 1782, 2139, 2142, 2216, 2478 and 3093, have been cited on this subject, but to the present author they seem either irrelevant of insufficient to enable any clear statement to be made as to the present relationship between the first two general principles. In any developed legal system this is a troublesome topic, but in the lex mercatoria it seems to be particularly difficult. (See a valiant attempt at a synthesis by Drains, Clunet (1974) 944, and also B. Goldman, Clunet (1979) 494.).
Goldman,'Frontiers'184 [cites] from a treatise by Fouchard an unpublished award to this effect. In an ad hoc arbitration YBIL (1982) 77, the arbitrators were amiable compositeurs, but expressed themselves to be applying the lex mercatoria and applied the concept of abus de droit to the giving of notice to terminate a commercial relationship. This concept cannot form part a 'macro' lex mercatoria, since it is not known to the common law.
To this effect, see Lando (supra, n. 4) 765. There appears to be no authority for such a radical proposition in the reported awards, and although there am a very few traces of something similar in the in common law (e.g. in relation to liquidated damages and penalties and the equity against forfeiture), it would not, as stated in the text, form part of a 'macro' lex mercatoria.
See Derains, Clunet (1976) 947 citing unreported ICC Award No. 2540.The observations of the arbitrators appear to have been obiter, since they decided according to national law. The doctrine is snot known to the common law.
Goldman. 'Contemporary Problems', 116; id., 'Réalités et perspectives', 492, and Loquin, Apport. The latter states that the principle is wider than principles which are applicable by national laws to 'les operations internes', and the references to awards suggest that it is a generalisation from other rules. See e.g. ICC No.2520, Clunet, (1978), 992, and No 2478, Clunet (1978), 925. The Norsolor case (supra, n. 73) is the most conspicuous example of this doctrine in operation.
Loquin, 'L‘arbitrage', 765, citing ICC No. 1110,apparently unreported, but discussed in some detail in Lew, Applicable Law 553 (supra, n. 4),ff. Like ICC No 3913, Clunet, (1984) 920, and also No. 3916, Clunet (1984) 930 (which is to the opposite effect) this was a case on jurisdiction, and was therefore perhaps concerned with international ordre public, rather than the lex mercatoria. See also Lalive, ICCA 52, citing No 2730,Clunet (1984) 914,also reported 9 YBCA 105. The latter could have been, and perhaps has, decided by direct reference to Yugoslav law, or by the ordre public of the lex fori. I suspect that the same is likely to be true in most, if not all, cases in this category.
See e.g., ICC No 27911 and supra n. 89. The transaction involved a fraud on the Yugoslav exchange authorities.
To this effect, Goldman, 'Contemporary Problems', 123, and Lalive ICCA Articles 136-7. There appear to be few if any reported arbitral awards on the point. Perhaps, it should be classed as a principle of international ordre public rather than lex mercatoria.
The broader version of this principle is extracted by Derains from ICC No. 2375, Clunet (1976) 973. See also Goldman, 'Réalités et perspectives', 496. This case and the Dow Chemical case were both concerned with the question of whether associated companies a bound by the arbitration clause. Nos. 2375 and 1434, Clunet, (1976) 978, are also referred to. I believe that most of these cases could, without recourse to this very far-reaching doctrine, which is certainly not part of the common law, have been decided simply by enquiring whether a consent to arbitration as between the associated company and the other parties could be spelt out of their words and conduct. See No. 2138, Clunet (1975) 934.
See Loquin, Apport, Article 39 and Goldman 'Réalités et perspectives', 492, citing ICC No. 2478, Clunet (1975) 925 (and note thereon by Derains) also No 2291, Clunet (1976) 989. The former is an example of the promisee's duty to mitigate his loss; the latter is referred to at n. 95, infra.
Cremades and Plehn (supra, n. 4), 346 There are several awards to this effect, including ICC No. 1512, Clunet, (1974) 905, No. 1990, Clunet (1974) 897; No. 2748, Clunet (1975) 925, No. 2291, Cluster (1976) 989 It may be doubted whether this is a separate rule, rather than an application of pacta sunt servanda.
A common lawyer must step delicately here. Much attention has been given to Soc. Européene d'Etudes v. Yugoslav Government (1959), J. de Dr. Int. 1074, and to ICC Award No. 2291, Clunet (1976) 989. Unfortunately, space does not permit a full discussion of these two awards and the interpretations which have been placed upon them. The former was a remarkable case in which the arbitrators implied into an engineering contract a guarantee against exchange losses, resulting in an award of 20 times the sum stipulated by the contract. This decision, described by Fouchard (supra, n. 4), Article 618 as 'audacieuse', could not be said to exemplify any lex mercatoria with claims to a worldwide perspective and one may detect a note of unease about it even among enthusiasts The other award, ICC No. 2291, is an example of those cases where a common place dispute was given an extra dimension by unnecessary recourse to the lex mercatoria. It is, however, an instructive example of the danger of making unsupported generalisations. In the award and commentary we find that Anglo-Saxon law is 'plus accessible ß la revision des contrats en cas de déséquilibre meme pour la cause économique (clause de hardship)', as well as reference to 'le présence presque automatique de clauses de ce type dans les contrats internationaux'. The former is not a correct statement of the common law; and the inclusion of hardship and similar clauses in the routine type of transportation contract with which the arbitrators were concerned is almost, if nor entirely, unknown.
Award ICC No. 2583, Clunet (1976) 950, and note Derains; No. 3540, Clunet (1981) 915; 7 YBCA 124.
Fouchard (supra, n. 4) 441, citing an unpublished award.
A contract describing itself as 'vente d'equipement' was treated as embracing a contract of services in ICC No 3242, Clunet (1982)968.
ICC No 2404, Clunet (1978) 995.
This rule appears on all the lists. Various awards are cited in support, including ICC No. 2478, Clunet (1975) 925; No. 2103, Clunet (1974) 902; No. 3344, Clunet (1982) 978; No. 2412, Clunet (1974) 892. The awards on mitigation rarely call up the lex mercatoria in so many words; they merely treat the principle as obvious.
Fouchard (supra, n. 4), 441. citing an unpublished award.
ICC No. 3344, Clutter (1982) 978; No. 3243, Clunet (1982) 968; No. 2250, Clunet (1976) 892, have been cited in support.
Commentary on ICC No. 2520 (supra, n. 102). citing No. 2291.
ICC No. 3540 (supra, n. 96). As given in YBCA 131 the conditions for the exercise of a set-off resemble those for a set-off in 'in law' under English law, but are more restrictive than those of the set-off 'in equity'.
ICC No. 1434, Clunet (1976) 978.
ICC No. 3344. Clunet (1982) 978. This conclusion, said to be, 'fortement influenceé par le droit francais', is not consistent with the common law.
P. Schlosser, op. cit., 107.
There, is, of course, a risk of unfairness here. It is too easy to say that if the rules form part of every nation's law, they are banal, and that if they do not, they cannot be the subject of a valid generalisation.
Even with the help of colleagues here and abroad and generous access to libraries, the present author was unable to follow up by any means all the references cited in the more readily available literature.
e.g.,the Society of Maritime Arbitrators in the United States and various chambers of trade and arbitral institutions in Europe.
Arbitral awards applying national laws, like the judgements of courts, form part of the corpus of national laws, from which, by a process of creative induction, an international arbitrator may derive the rules of the lex mercatoria; but the adviser cannot safely treat them as directly establishing these rules.
e.g Cremades and Plehn (supra, n. 4), 342, and J. Lew, Lib. Am .Saunders, 231. See also Derains, in Clunet (1977) 931, on the editorial principles of that journal.
Among published awards ICC No 4237, 10 YBCA 52, may be an isolated example.
Many instances are collected in J. Lew, Applicable Law, (supra, n.4).
See 'L'Objet essential du droit, la prévisibilité', in Fouchard (supra, n. 4) 435.
Some large claims are made for the current acceptability of the lex mercatoria. For example, 'L' existence de rÞgles transnationales qui régissent les relationes économiques, notamment entre États et entreprises étrangères, n'est plus sérieusement contestable aujourd'hui' (P. Leboulanger, Les Contrats entre états et entreprises étrangères (1985) 221). It is however noteworthy that many commentators, including Goldman himself, express the position in much less extreme terms.
There can be no doubt that the divergence between the language of Articles 28(1) and (2) was deliberate, and marks a real difference in meaning. See the Analytical Commentary on the draft text, prepared by the Secretariat of UNCITRAL, A/C No. 9/264, p. 62 and 63 (English version). A proposal to assimilate the language of Article 28 (2) to that of Article 28 (1) was discussed, but not adopted; see Analytical Compilation of Comments by Governments, A/C No. 9/263, p. 41 (English version).
See e.g. Grigera Naón (supra, n. 11), 91.
This is well recognised by Derains, Clunet (1977) 976 and Clunet, (1980) 950. where he speaks of the 'banalisation' of arbitration.
Of course, many awards are still honoured spontaneously. But it is much more common than it used to be for claimants to seek security for an eventual award, and the disapprobation of colleagues is not the force it was. Interestingly, a commentator (Cremades and Plehn (supra, n. 4), p. 325. n 39) cites reinsurance an example of a field where a awards are spontaneously honoured. This was so in the past, when the market was narrow, and default could be fatal. Nowadays, in the experience of the present author, reinsurance is the most bitterly litigious of all areas of commercial activity.
Malynes, the first English author on the old lex mercatoria, was a merchant. His book, Consueto, vel Lex Mercatoria was addressed to a wide public. It was said to of 'Necessary for Statesmen, Judges, Magistrates, Temporal and Civil Lawyers, Mintmen, Merchants and all other negotiating in any parts of the World'.
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Referring Principles/Related DocumentsReferring Principle: No. I.1.1 - Good faith and fair dealing in international trade
Referring Principle: No. II.2 - Agent acting on behalf of group of companies
Referring Principle: No. III.1 - Set-off
Referring Principle: No. IV.1.2 - Sanctity of contracts
Referring Principle: No. IV.2.2 - Silence by offeree
Referring Principle: No. IV.2.3 - No repudiation of contractual consent by state party
Referring Principle: No. IV.5.3 - Interpretation in favour of effectiveness of contract
Referring Principle: No. IV.6.7 - Duty to renegotiate
Referring Principle: No. IV.7.1 - Invalidity of contract that violates boni mores
Referring Principle: No. IV.7.2 - Invalidity of contract due to bribery
Referring Principle: No. IV.8.1 - Principle of pre-contractual liability
Referring Principle: No. VI.1 - Termination of contract in case of fundamental non-performance
Referring Principle: No. VII.2 - Principle of foreseeability of loss
Referring Principle: No. VII.4 - Duty to mitigate
Referring Principle: No. VIII.1 - Definition
Referring Principle: No. - Waiver of right to object
This document is cited by:ICC Award No. 6219, Clunet 1990, at 1047 et seq.
ICC Award No. 8365, Clunet 1997, at 1078 et seq.
Dalhuisen, Jan H. - Legal Orders and Their Manifestation: The Operation of the International Commercial and Financial Legal Order and Its Lex Mercatoria, (2006) 24 Berk J Intl L 129.
Goldman, Berthold, Nouvelles Réflexions sur la Lex Mercatoria, in: Festschrift Pierre Lalive, Basel, Frankfurt a.M. 1993, at 241 et seq.
Rivkin, David R., Lex Mercatoria and Force majeure, in: Gaillard (ed.), Transnational Rules in International Commercial Arbitration (ICC Publ Nr. 480,4), Paris 1993, at 161 et seq.
van Houtte, Hans, Changed Circumstances and Pacta Sunt Servanda, in: Gaillard (ed.), Transnational Rules in International Commercial Arbitration (ICC Publ. Nr. 480,4), Paris 1993, at 105 et seq.
O'Neill, Philip; Salam, Nawaf, Is the Exceptio Non Adimpleti Contractus Part of the New Lex Mercatoria, in: Gaillard (ed.), Transnational Rules in International Commercial Arbitration (ICC Publ Nr. 480,4), Paris 1993, at 147 et seq.
Gotanda, John Y., Awarding Interest in International Arbitration, 90 AJIL 1996, at 40 et seq.
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