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Saggi, Conferenze e Seminari 42. Reproduced with permission of Centro di studi e ricerche di diritto comparator e straniero, diretto da M.J. Bonell

Transnational Commercial Law
in the Age of Globalization

Klaus Peter Berger
Roma (March 2001)

     Introduction
  1. The Socio-Economic Level
    1. The Evolution of a "Global Market Place"
    2. The Interdisciplinary Aspects of Globalization
  2. The Methodological Level
    1. The Decreasing Significance of State Sovereignty in the Traditional Theory of Legal Sources
    2. The Contract as the Source of Transnational Commercial Law
      1. The Significance of Private Contracting
      2. The Contract as a Source of Transnational Business Law
  3. The Third Level: Transnational Law in Legal Practice
    1. Practitioners' Experience with Transnational Law
      1. Awareness of Transnational Law
      2. Subject Matters of the References to Transnational Law
      3. Possible Function of the Reference to Transnational Law
      4. Individualization of Certain Principles or Rules
    2. Reasons for Practitioners' Rejection of the Concept of Transnational Law
     Conclusion

INTRODUCTION

Forty years ago, Clive Schmitthoff,[1] René David,[2] Berthold Goldman [3] and his pupils, Philip Fouchard [4] and Philip Kahn [5] rediscovered the new lex mercatoria or law merchant. Since then, the theory of international business law is divided into two camps.[6] The conflictualists accuse the doctrine of the transnationalization of commercial law as being nothing more than a "mere sociological phenomenon", a "trip into legal weightlessness",[7] a "legal utopia"[8] or simply "palm tree justice".[9] In their view, every trans-border commercial transaction has its "seat" or center of gravity in a domestic legal system to be determined by the applicable conflict of laws rules. The transnationalists reject this view. They maintain that there is a "third" legal system besides domestic laws and public international law. In their view, the application of transnational law to cross-border commercial transactions has two major advantages. First, it avoids the [page 1] uncertainties of traditional conflict of laws methodology. Secondly, the new law merchant is better able to cope with the complexities and specificities of and the need for a flexible and adaptable legal framework for modern commercial transactions.[10] René David has exposed the transnationalists' vision as early as 1969:

"[T]he lawyer's idea which aspires to submit international trade, in every case, to one or more national systems of law is nothing but bluff. The practical men have largely freed themselves from it, by means of standard contracts and arbitration, and states will be abandoning neither sovereignty nor prerogatives, if they open their eyes to reality and lend themselves to the reconstruction of international [business] law".[11]

Today, David's statement is more up to date than ever. The reason is the increasing globalization of the world economy, i.e. the integration of hitherto separate national markets. International businessmen no longer conclude their contracts across domestic borders. Instead, they act in a global market place in which they take care of their own affairs irrespective of the applicable domestic law. The "new economy" as a new form of business organization necessarily influences the law creation process in international business. The revolution of information technology and the rapid development of e-commerce allows for new and integrated ways of business communication. This has caused the phenomenon of "time compression", a fundamental change of our perceptions and expectations regarding of what are, and are not, acceptable delays.[12] "Cyberspace", by its very nature, is at odds with the traditional [page 2] conception of the world as legal territories surrounded by fixed borders, and suggests the usefulness of a law that knows no boundaries.[13] In fact, some say that globalization means the end of geography.

Against this background of dramatic change in theory and practice, the following remarks are intended to provide an account of the significance that the doctrine of transnational commercial law has achieved today. This will involve three different angles: the socio-economic framework of contemporary international business (I.), the changing paradigms of legal methodology (II.) and the transnationalization of legal practice (III.).

I. THE SOCIO-ECONOMIC LEVEL

1. The Evolution of a 'Global Market Place'

In the modern globalized business environment businessmen seek to reduce transaction costs and to increase economic efficiency. The transaction costs involved in the application of domestic laws to transnational commercial transactions have always been regarded as hampering the development towards globalized markets. The application of foreign law is regarded as the "globalization trap", the devision of the world into different legal systems can be regarded as a non-tariff trade barrier. The fathers of the lex mercatoria doctrine have always emphasized that economic factors -- and above all the strive for enhanced productivity, for rationalization of production and for the reduction of transaction costs as well as the development from domestic and regional to world markets that goes along with these developments -- have a significant impact on the evolution of a [page 3] transnational system of law.[14] The dramatic economic transformations of the world economy that have taken place and are taking place today at an enormous pace relate directly to the social and economic processes 'at the periphery' of the legal process which serve as the laboratory for the creation of transnational legal structures.

What are the economic factors and legal developments which should be taken into account to evaluate the current climate for the transnationalization of commercial law?

Among the economic and geo-political factors which influence the theory of the lex mercatoria one should mention:

   -    the disappearance of the cold war and of the north-south conflict;
   -    the progress of European integration and the creation of a Single European Market;
   -    the dramatic increase of truly Transnational Corporations (TNCs) through Mega-Mergers;
   -    the changing climate of global corporate culture ("corporate governance") which follows from the activities of TNCs;
   -    the revolution of global communication technology;
   -    the rise in the use of internet and EDI/EDIFACT;
   -    the massive increase in global financial flows;
   -    the creation of 'global financial and capital markets'.

These geo-political and economic changes have prompted a series of legal developments which are directly relevant for the transnationalization of commercial law:

   -    the victory of the doctrine of party autonomy;
   -    the realization that in many cases, the technicalities of domestic legal rules do not fit for international trade; [page 4]
   -    the privatization or 'informal nature' of lawmaking both in the field of private law and public international law;
   -    the increased significance of non-governmental organizations (NGOs);
   -    the success of CISG and other international uniform law instruments;
   -    the decreasing significance of private international law;
   -    the emphasis on fairness and reasonableness in international contract law;
   -    the acceptance of comparative law as an independent legal science;
   -    the 'gradual convergence' of civil and common law;
   -    the growth of a modern European ius commune and the development towards a 'European Civil Code';
   -    the transnationalization of areas which have so far been reserved for domestic legislatures such as antitrust and bankruptcy law;
   -    the extreme growth in the use of arbitration and alternative dispute resolution (ADR) mechanisms in international trade;
   -    the equation of arbitration and state courts as genuine adjudication procedures and the emergence of a genuine arbitral case law.[15]

All of these factors have a basic common denominator: the erosion and irrelevance of national boundaries in markets which can truly be described as global or "transnational" and the decreasing significance of state-sovereignty for rule making and rule enforcement.

2. The Interdisciplinary Aspects of Globalization

Globalization is a hybrid and complex process. The legal effects which it creates cannot be explained with a single factual or legal argument such as the proliferation of general contract conditions or the normative value of trade usages. In view of the dramatic changes of [page 5] the economic and geo-political conditions it requires an interdisciplinary approach [16] which takes into account the research of all those sciences which deal with the change of paradigm in international business.

Political scientists regard globalization as the reason for the decline of the "Westphalian" model of international relations which was based on the sovereignty of states.[17] This corresponds to a new and progressive view of public international law as a "truly transnational law" of global or "supraterritorial" governance which no longer serves to coordinate the relations between individual states but is shaped and developed by the activities of non-governmental organizations (NGOs) and private entities such as multinational corporations.[18]

National economists have long since observed the development of a "private civil society" in which the states adhere to the principle of "subsidiarity" and leave the regulation of daily affairs to their citizens and intervene only if and to the extent that private self-regulation fails [19]. In the context of international business, the doctrine of "New International Economics of International Transactions" (NIIT) has been developed. It takes a transaction-oriented approach to international business and deals with the constitutional uncertainties resulting from the territorial limitations of lawmaking and law enforcement and the problems (coordination of economic behavior, increase of transaction costs) arising out of this phenomenon for the [page 6] property rights exchanged in international trade.[20] As a consequence of this "law and economics"-approach to decentralized law-making,[21] the effects of private ordering for the creation of norms by decentralized societal self-organizations are verified by application of game theory and computer modeling techniques.[22]

Finally, sociologists regard the decentralized law creation through the social group of international businessmen and their institutions (ubi commercium, ibi ius) as an example of "reflexive law", i.e. a law creation process that reacts to the facts and developments of real life instead of imposing on society how life should be.[23]

In all disciplines just mentioned, research is focussed on the same problem: the transfer of rule making powers and organization processes from the state sovereign to private groups, entities, individuals or non-governmental institutions and the "de-formalization" of the norm-creation process that goes along with it.

II. THE METHODOLOGICAL LEVEL

The developments just described have a significant impact on legal methodology. These interdependencies between the process of increasing globalization of the world economy and legal methodology [page 7] are frequently neglected and underestimated. However, they are of paramount significance for the theory of transnational commercial law. As an independent legal system, it requires a sound methodical basis. An isolated layer of transnational rules and principles without a sound methodical underpinning would mean the death of the lex mercatoria. It is the method which paves the way to the creation of substantive norms and not vice versa.[24]

In the area of transnational commercial law, the change of legal methodology has taken place in two interrelated steps: First, the notion of state sovereignty has lost its prominent place within the traditional theory of legal sources (1.). As a consequence of this, the contractual consensus has assumed the role of a source of law, not only for the parties who have concluded the contract but for the business community as a whole (2.).

1. The Decreasing Significance of State Sovereignty in the Traditional Theory of Legal Sources

The states' loss of their formerly dominant position in international policy- and rule-making which goes along with this process, the decreased significance of sovereignty and the freedom of the parties in international contract law have caused a reconsideration of the traditional theory of legal sources which has 'moved beyond yesteryear's narrow-minded positivism'.[25] The traditional theory of legal sources was centered around the notion of sovereignty:

"Only those rules imposed by society deserve the name of law which have behind them the force of the law or ... the [page 8] force of the sovereign state, meaning that only those rules adopt the quality of legal norms that have been vested with this effect by the sovereign state or that the state is the only source of the law."[26]

Clive Schmitthoff has rightly stated in the early 1960s that modern international trade law, when compared with the medieval lex mercatoria, has one great drawback: the modern concept of the nation state which originated a legal order of numerous municipal systems.[27] Today, the picture has changed. A non-positivistic notion of the law is beginning to emerge.[28] The law has to take account of the complexities of society and the dramatically changing socio-economic framework of international business elaborated above. In view of these developments, it is not the public reason represented by the state or by inter-governmental organizations alone but also the power for self-regulation and coordination of the individual and of private organizations and federations which justifies normative force. A pluralism of legal sources is developing which is based on the realization that society's ability for self-organization and coordination is more than a mere factual pattern without independent legal significance. Today, it assumes a normative quality of its own.

2. The Contract as the Source of Transnational Commercial Law

Focussing legal theory on self-regulation and self-organization rather than on state-decreed norms and statutes results in emphasizing the role of the contract as a source of law not only for the parties who have concluded it but for the business community as a whole. [page 9]

a. The Significance of Private Contracting

This lawmaking power is based on the liberty of private contracting which constitutes the most fundamental rule of any legal system:

"C'est ... une règle fondamentale du droit reconnue par tous les peuples que le consentement réciproque de deux sujets de droit suffit à créer, à transformer ou à éteindre un rapport juridique. Cet échange de volontés, c'est le contrat. Toute liberté est, en principe reconnue aux hommes pour contracter, et leur volonté est dite autonome en ce qu'elle crée la règle."[29]

In participating in the contractual consensus ('consensus ad idem'), each party expresses the confidence that its counterpart will comply with the terms and conditions of the contract.[30] Thus, in international business, the contract becomes the central means to implement the will of the parties in practice because, in the absence of any need to ensure consumer protection, international trade and commerce constitutes an ideal climate for the free development of contractual structures.[31]

The realization of this eminent force of the contractual consensus goes back to Grotius and Pufendorf, who realized that the keeping of one's word is in harmony with the social nature of men and the principle of good faith.[32] Through these authors, this realization then penetrated into classical contract law doctrine.[33] The ancient [page 10] lex mercatoria of the Middle Ages was thus built on the faith in a given word, thereby allowing the actionability of pacta nuda 'in curia mercatorum'.[34] At the fairs, seaports and market towns of the Middle Ages, 'purchase and sale of merchandise was continually made' and 'the law merchant or law of the market was always followed there continuously'.[35]

Today, this ancient contract practice forms the basis of the 'promise principle' as the underlying idea of modern contract law.[36] The trust of one side in the promise of the other ('my word is my bond') provides the essential basis for modern international trade transactions.[37] The legal obligation that requires performance from every party to a contract is nothing other than the moral duty to respect one's word.[38] Also, international businessmen bear an increased responsibility for the conduct of their business affairs, resulting in a transnational principle which presumes their professional competence.[39] It is thus in the field of transnational business activities, where the force of the contractual consensus can flourish and develop its law-making quality, unhampered by consumer protection laws and notions of distributive justice that go beyond the general principle of 'good faith and fair dealing in international trade'.

b. The Contract as a Source of Transnational Business Law

The pressures and forces of the globalization process and of the [page 11] self-regulation process of the global civil society have transformed the contract as the means of business self-organization into a source of law. The 'Anti-BGB tendency'[40] which is inherent in the comprehensive contracts of international business, their nature as part of a chain or network of similar contracts concluded by businessmen for the purpose of bringing about that particular transaction, the morality and mutual trust of international business, the presumed rationality of standard contracts and general contract conditions, the idea of the increased professional competence and responsibility of international businessmen, the fine-tuning of comparative law into a 'transnational rules method'[41] and the rule-making by international formulating agencies [42] and private working groups all contribute to a comprehensive legal process which ultimately contributes to the normative force of the principles and rules which result from these contracts.[43] The contract is no longer the object of domestic rules to be applied to it according to traditional conflict of laws principles. In modern business relationships, the contract assumes the genuine function of a source of law:

'Traditional legal concepts do not include the contract among the sources of law. But if we continue to conceive of the contract as a mere application of the law, and not as a source of law, we will preclude the possibility of understanding how the law of our times is changing. The contract is taking the place of the law, even in the organization of society. Some decades ago Millibad wrote that, more than ever, people considered the state as source of all provisions and even as a source of their [page 12] happiness. Today we must say that this notion is disappearing. Society now looks after itself and tends towards self-organization ...

The inadequacy of the law to make changes derives from two characteristics of contemporary economy. The first is the meta-national nature of the economy which is antithetical to the national character of the legal systems. The second is that the economy is in continuous change which demands flexible instruments of adaptation from the law to change, in antithesis to the rigidity of the laws.'[44]

This law-making function of the international business contract would not be possible without the support and control by international arbitrators as the natural judges of international trade. If the confidence of one side in the compliance with the contractual terms by the other is disappointed, international arbitrators, whose jurisdiction is based on the consensus of the parties, assume the function of a control instance. The parties' confidence is no longer focused on the counter-party's will to comply with the contractual terms but on the competence of the arbitral tribunal as a privately constituted and 'genuine' court for international trade. The transfer of the case from the plane of the individual bargain to the arbitral tribunal also leads to a change of perspective. The neutrality of the arbitrators requires them to take an objective view of the case, applying objective commercial standards such as 'fair dealing', 'reasonableness' and 'trade usages', thereby enriching the abstract contractual consensus ('pacta sunt servanda') with legal and commercial safeguards.[45] The private [page 13] character of the arbitral process may therefore not be used as an argument to deny the control competence of international arbitrators. Rather, the contractual character of their competence guarantees the homogenous character of the transnational legal process in that not only the participation in it but also the compliance control is based on the same legal notion, i.e. the contractual agreement as such. It is not surprising, therefore, that both general contract law and arbitration, are characterized by the same principle: 'in favorem validitatis'.

III. THE THIRD LEVEL: TRANSNATIONAL LAW IN LEGAL PRACTICE

Now that the phenomenon of globalization has instilled new momentum in the theory and methodology of transnational commercial law the question remains: is the new law merchant actually being accepted and used by international practitioners who are operating in a globalized business environment? Or do international practitioners prefer the foreseeability and predictability of domestic laws? This latter allegation is the argument most frequently raised against the lex mercatoria doctrine. In order to find a reliable empirical basis to answer these questions, the Center for Transnational Law (CENTRAL) at Münster University, Germany with the support of the Volkswagen-Foundation has conducted the first worldwide enquiry on the use of transnational commercial law in legal practice, i.e. in negotiations, contract drafting and arbitration. A questionnaire was sent to more than 2,700 practitioners from international law firms and major international companies. The return rate was 29.6% which means that 808 addressees have responded to the enquiry.[46] [page 14]

Their responses have revealed that a significant part of international practice is already familiar with the concept of transnational law (1.). They have also shown that the reasons why practitioners still reject this concept in legal practice are rather pragmatic than resulting from a principal aversion against the notion of transnational commercial law (2.)

1. Practitioners' Experiences with Transnational Law

a. Awareness of Transnational Law

One of the most important result of the CENTRAL enquiry relates to the international practitioners' awareness of the use of transnational law in international practice. This refers to both their own practice or to cases which they had heard of.

About one-third of those addressees who replied to the enquiry indicated that they were aware of the use of transnational commercial law in international contract negotiations and choice of law clauses.[47] The result was even higher (42%) in the context of international commercial arbitration. This difference is not surprising given the liberal character of arbitration proceedings and their isolation from traditional rules of domestic conflict of laws doctrine which provides the ideal background for the use and development of transnational legal principles and rules, detached from the constraints of domestic legal rules.[48] It is for this very reason that in the context of contract [page 15] drafting, the overwhelming majority (85%) of those addressees who had indicated that they had been in touch with transnational law in the context of contract drafting indicated that the contract contained an arbitration clause.[49] The transnational character of arbitration also explains why more attorneys than corporate lawyers tended to reveal practical experience with transnational law. While corporate lawyers have only occasional contact with arbitration, many attorneys included in the enquiry were arbitration specialists.

What is surprising is the fact that such a high percentage of the addressees indicated their awareness of the use of transnational law in legal practice. When evaluating this rate of positive responses, it has to be borne in mind that there was a high number of arbitration experts among the addressees of the questionnaire. They show a natural favorable tendency towards comparative decision making [50] as a basic prerequisite for the concept of transnational commercial law. It is due to this fact that international arbitrators are generally regarded as one of the creators of the new law merchant.[51] In spite of this reservation, the high percentage of positive responses is surprising given that the alleged rejection by international legal practice serves as one of the main arguments for those who oppose the existence of an autonomous legal system of international trade law. The significance of this data is underscored by the fact that in all three categories (contract negotiations, contract drafting and arbitration) a significant number of addressees indicated that they were aware not just of one single case but of 2 to 5 cases in which transnational commercial law had been [page 16] used. A significant number of addressees even indicated that they were aware of 6 to 10 cases where transnational law concepts had been used.[52]

b. Subject Matters of the References to Transnational Law

It is important to note that due to the inherent vagueness of the concept of transnational law, these replies have to be viewed against the background of what exactly had been referred to in the cases which the addressees were actually aware of. Again, the CENTRAL enquiry shows a relatively consistent pattern in all three categories (contract negotiation, contract drafting and arbitration). 'General Principles of Law' was the terminology which had been used most often, followed by 'Lex Mercatoria', and 'UNIDROIT Principles of International Commercial Contracts'. Also, reference to 'Transnational Principles of Law' has been made quite frequently.[53] These figures, however, are not very indicative since the term 'Transnational Principles of Law' can only be regarded as a catch-all category without any general significance. Again, this result confirms both general commercial practice and the theory of transnational commercial law.

In legal theory, general principles of law are regarded as the major components of an autonomous system of the new law merchant both with respect to their genetic function as regards concrete and specific legal rules and with respect to their function as reference points for the valuation processes within this legal system.[54] In legal practice, the reference to transnational principles of law has always been the major approach towards the 'internationalization' of [page 17] international commercial contracts.[55] The fact that in a comparatively large number of cases reference has been made to the 'lex mercatoria' is surprising. In the context of the use of transnational law in legal practice, it is frequently the use of the terminology which plays a major role in the discussion about the rejection or acceptance of this concept. It has therefore been rightly suggested that the terminology "lex mercatoria" should be abandoned in favor of the term "transnational commercial law."[56] Given the severe dispute about the viability of a doctrine of transnational commercial law, it can be assumed that many practitioners perceive the term 'lex mercatoria' to be overloaded with the alleged doctrinal and practical difficulties that are usually attached to the concept of the transnationalization of commercial law.[57] One of the addressees, an eminent arbitration specialist from Europe, responded to the enquiry:

'In these [arbitration] cases as well as in many others, I did invoke in my briefs, memorials or oral arguments ..., rules of transnational law or the lex mercatoria, but, on practically all occasions, although all these cases were won, the arbitrators, if I remember correctly, preferred in general to avoid any specific reference to transnational law or lex mercatoria! I may add ... that, according to my experience, most of the distinguished arbitrators I have been dealing with preferred to invoke "general principles of law" or "legal principles common to the parties" opposed in the case rather than one of these new concepts!

... On a number of occasions, the arbitrators have indeed resorted to these somewhat new legal concepts but they left them [page 18] nameless. They have, sometimes upon the suggestion of one or the other member of the tribunal, avoided to mention these formula expressis verbis. They were apparently afraid to open the door to an appeal for nullity of the award by the losing party.'

Thus, practitioners frequently tend to avoid the term 'lex mercatoria' or, since their publication in May 1994, prefer to make reference to the 'UNIDROIT Principles of International Commercial Contracts'. In their Preamble, these Principles provide that they 'may be applied when the parties have agreed that their contract be governed by general principles of law, the lex mercatoria or the like'. The direct selection of the Principles by the parties or arbitrators, however, has the advantage of allowing the parties to make a reference to a set of neutral, workable and concrete principles and rules just as if they were making reference to their domestic code instead of a vague and abstract notion of transnationalism with which many parties or arbitrators would not feel comfortable. Even though the Principles do not necessarily 'codify' the new law merchant,[58] reference to the Principles helps counsel and arbitrators to avoid the emotions and misunderstandings which are necessarily connected with any discussion on the dogmatic or practical viability of the doctrine of transnational commercial law. This explains why they have been mentioned so often in the CENTRAL enquiry. This result is in line with the UNIDROIT enquiry undertaken in 1997. 59% of the addressees who had replied to that survey indicated that they had used the Principles as guidelines in contract negotiations, 13.1% had referred to the Principles in support of a solution adopted in an arbitral award.[59] The frequent reference to arbitration in both studies is [page 19] confirmed by recent studies on the use of the principles in international commercial arbitration. They have revealed that the Principles do in fact help international arbitrators to find 'better' solutions for international commercial disputes.[60]

c. Possible Function of the Reference to Transnational Law

The CENTRAL enquiry has revealed a further important factor for the understanding of the functioning of the concept of transnational law in legal practice. This point relates to the function which a reference to the new law merchant may play in contract negotiations, contract drafting and arbitration. It is important to note at the outset that the knowledge of a case where transnational law has been used does not necessarily mean that it has been used as the applicable law.

In all three categories (contract negotiations, contract drafting and arbitration), the number of addressees who had indicated that transnational law had been used 'in connection with domestic law', i.e. above all with respect to the supplementation and interpretation of domestic law tended to be higher than the number of addressees who indicated that transnational law served to actually replace domestic law as the lex causae.[61] It has to be emphasized that these figures can only serve to support a general trend since multiple answers were possible. Still, this distribution of answers serves as an indication for the flexible character of transnational law. It also reveals the 'Cartesian pragmatism' with which international legal practice is approaching the issue of the transnationalization of the global legal process today. Rather than entering into time-consuming discussions on the benefits of transnational law as opposed to domestic law, this concept is used within the framework of domestic laws to arrive at solutions which are [page 20] better able to meet the needs of the international businessman. In the context of international arbitration, this approach is reflected in the notion of the 'internationally useful construction'[62] of domestic laws. It was used by an ICC arbitrator who interpreted the applicable Dutch contract law in the light of the UNIDROIT Principles.[63]

A second significant group of responses relates to the use of transnational law to supplement or interpret international uniform instruments.[64] This approach has always been the major focus of attention of both practice and theory. It serves the important function of avoiding the dilution or 'nationalization' of international uniform law once it has been transformed into a domestic legal system where it is exposed to the traditional methods of construction of that particular jurisdiction.[65] It is for this reason that the UNIDROIT and Lando Principles make explicit reference to their function as a means to 'interpret or supplement international uniform law instruments'.

Finally, it should not be overlooked that a significant number of responses referred to the use of transnational law as a 'means to improve the understanding between parties from different legal systems and with different languages'.[66] This result is in line with UNIDROIT's 1997-Study, where 30.9% of the persons who replied had indicated that they had used the Principles as a means to overcome language barriers in contract negotiations or arbitration.[67] These [page 21] problems are obvious and well-known to everybody who is practicing international commercial law. However, it is not just the language alone but the different legal concepts of the jurisdictions which frequently prevent an understanding of the parties. The negotiations of the Channel Tunnel Construction Contract provide a perfect example for this dilemma.[68] Transnational law is based on the functional legal comparison, a methodology that tends to look behind the dogmatic differences of domestic legal systems by distilling common legal values and concepts out of seemingly different domestic legal rules.[69] This methodology provides an excellent means to overcome the barriers imposed by different languages and different legal concepts in contract negotiations and arbitration. Ultimately, this function of transnational legal concepts in removing language barriers in the law and practice of international trade provides additional impetus for the development of the new law merchant. Again, this reveals that the new lex mercatoria is born out of practical needs of the business community and not out of the theoretical discussions of some learned law professors.

d. Individualization of Certain Principles or Rules

The CENTRAL questionnaire also asked the addressees to state exactly to which principles of transnational law reference had been made during contract negotiations (Question 3). The answers received confirmed the expectations of the Research Team that it is hardly [page 22] possible to receive enough answers to accumulate significant data with respect to the use of certain principles or rules. The only relevant answers referred to 'good faith', 'pacta sunt servanda' and 'hardship/force majeure'.[70] One addressee indicated that certain transnational rules and principles have been used as 'contractual compromise solutions' or 'lowest common denominator' without, however, indicating individual rules which have been used in this context.

These answers are significant only insofar as they relate to principles and notions which have always been criticized as too vague and broad and as the major examples for the uselessness of the lex mercatoria concept. These data relate to the value that is attached by international legal practice to the notions of legal certainty and predictability. Again, these notions have for a long time served as standard arguments against the lex mercatoria. They become even more relevant in the second major group of answers in the CENTRAL enquiry to be discussed immediately below.

2. Reasons for Practitioners' Rejection of the Concept of Transnational Law

The CENTRAL Enquiry has also yielded data which show why many international practitioners reject the concept of transnational commercial law. It does not come as a surprise that these reasons are rather pragmatic than dogmatic. The enquiry has revealed a major gap between the theory of transnational commercial law and legal reality. For decades those who have so vigorously opposed the theory of the new law merchant have referred to the fact that the lex mercatoria does not provide a complete legal system, that the principles and rules [page 23] are too vague and lack the necessary certainty and predictability [71] and that awards based on transnational commercial law might not be enforceable before domestic courts.[72]

The CENTRAL enquiry shows that the alleged incompleteness of the lex mercatoria and enforcement concerns do not play a major role in legal practice even though the study has also revealed that practitioners attach substantial if not overwhelming weight to the issue of enforceability in general.[73] More important, answers referring to the vagueness and uncertainty of transnational commercial law are by far outweighed by those replies that refer to the lack of practical experience and the fact that no information has been available on the subject of transnational commercial law.

When evaluating these data it has to be borne in mind that the questionnaire contained preformulated answers as to the lack of experience and information while arguments relating to the vagueness and uncertainty of the lex mercatoria had to be filled in by the addressees under the general heading 'suitability' or 'other reasons'. Even under this caveat, these results seem to confirm the view that in international business, foreseeability and legal certainty are no absolute and dominant values:

"... we submit that, contrary to common wisdom, transnational rules offer as much predictability, if not more predictability, than genuine legal systems. Obviously, the list [page 24] approach [i.e. the drafting of international restatements of contract law] has provided a first answer to the criticism according to which transnational law is hard to locate, almost in the physical sense of the word, as opposed to a neat leather-bound series of law reports, or a convenient electronic data base, and is thus vague and unpredictable. More fundamentally, the criticism is based on a remarkably abstract perception of the law, totally detached from the realities of commercial transactions and the actual needs of 'ordinary businessmen'."[74]

The results of the enquiry also seem to confirm that international legal practice does not follow the misleading argument that the viability of transnational commercial law necessarily requires the completeness of its rules and principles. Instead, it seems that many practitioners simply lack the necessary experience or information about the use of transnational law. One addressee stated that 'among legal counsel and parties, transnational law is practically not known'. In the eyes of many addressees this lack of knowledge would cause too much need for explanation and thus too much time during contract negotiations or arbitration. Other addressees indicated that 'we would need a stable, established definition of transnational law in order to use it; since we are not conversant with its application/definition, we are unlikely to refer to it'. Yet another one simply stated: 'I want to see how it operates in practice first'. Also, many addressees stated that it was due to this lack of knowledge that in their view, the lex mercatoria lacks the necessary legal certainty. One addressee stated:

'When a legal relationship between the parties may be perfectly framed in a set of (specific, well-known and complete) rules of transnational law, I would agree that the advantages that would arise from the knowledge of both parties of the applicable [page 25] rules would be large.'

Another addressee spoke for many others and complained that 'information on transnational law (such as reference books, court decisions and arbitration awards in prior cases etc.) is not available'. Finally, one addressee emphasized that knowledge of one side of the contract negotiations or the arbitration might not be sufficient to have transnational law applied in certain cases:

"I think that there is an additional reason why as counsel I would not rely on principles of international law: Advising clients to use these principles might imply my responsibility, since the predictability of their application is low. In negotiations, one tends not to innovate too much. Negotiating with another party by invoking these principles requires that the other party is as well assisted by somebody who is aware of these principles and knows how to handle them. This is not always the case."

Thus, the CENTRAL enquiry with its world-wide coverage confirms the results that Gordon achieved in his small scale study in Florida. That study also revealed the poor knowledge of practitioners about CISG and the UNIDROIT Principles.[75] It can be assumed that this lack of information and practice is one of the reasons why a large number of addressees still prefers the use of national law.

It is important to note that according to the data derived from the CENTRAL enquiry, pragmatic reasons seem to prevail among legal practitioners over principal dogmatic reservations against the use of the concept of transnational commercial law. In fact, international business practice seems to be trapped in a vicious circle today. 276 of the addressees (43.19%) [76] have indicated that the issue of 'acceptance' [page 26] of transnational commercial law is an important or even very important factor for their evaluation of the pros and cons of the lex mercatoria. Without information, however, there is no chance for acceptance of the new law merchant among international legal practitioners.

CONCLUSION

At the outset of the 21st century, the globalization phenomenon has caused state sovereignty to disappear as the major stumbling block in the way towards the transnationalization of international commercial law. The focus of theory and practice of international business law has changed from lawmaking by national sovereigns or international organizations to informal rulemaking and self-organization by the international business community:

"There can be no doubt that business self-regulation is now here to stay, and that it is indeed a threat to traditional ways of [legal] thinking insofar as these cannot cope with the globalization of trade ... In this respect the challenge for the years to come ... will be that of redefining the allocation of responsibility for legitimate rule-making between states and business."[77]

As a consequence of this development, informality and pragmatism have gained ground in the theory as well as in the practice of transnational commercial law. Cartesian pragmatism prevailed when England and France negotiated the choice of law clause in the Channel Tunnel Construction Contract.[78] UNIDROIT and the Lando Commission issued the Restatements of European and international [page 27] contract law even though the exact legal nature of these instruments is still discussed today. While this discussion is going on in the academic world, the Restatements are praised as the "ratio scripta" of international contract law. They are being used by international arbitrators with increasing frequency. They are even used by domestic legislatures as a model for their own legislation. Pragmatism and the power of facts ("Macht des Faktischen") has again prevailed. Pragmatism has also reached legal theory when it is argued that "if not a genuine legal order, transnational rules do perform, in actual practice, a function strikingly similar to that of a genuine legal system."[79]

What will the future bring? UNIDROIT is working on a second edition of the Principles.[80] The Lando Principles are regarded as the nucleus of a European Civil Code.[81] In November 2000, the Committee for Legal Affairs and Common Market Policy of the European Parliament has urged to discuss this issue "in a pragmatic fashion and freed from dogmatic constraints".[82] The Center for Transnational Law at Münster University will present the first online database on transnational commercial law in October 2001, making the CENTRAL List of Transnational Rules and Principles together with comprehensive references accessible through the internet for practitioners and academics all over the world.[83] Finally, the idea of a "Global Commercial Code" as a compilation of special rules relating to the most important kinds of commercial transactions to be drafted [page 28] by UNCITRAL is being relaunched.[84]

All these projects reflect a truth which has been expressed in UNIDROIT's 1971 Report to UNCITRAL on the "Progressive codification of the law of international trade", at a time when the new lex mercatoria was rediscovered by the French school:[85]

"The very fact that the legal relationships of international trade are international in character puts them outside the jurisdiction of municipal law and makes them governable by a law removed from any national contingencies, that is, an ordinary law of international trade, which alone can provide the legal framework which international trade needs in order to develop ..."[86] [page 29]


FOOTNOTES

1. Schmitthoff, in: Schmitthoff (ed.), The Sources of the Law of International Trade, 1964, at 3, 5.

2. David, in: UNIDROIT (ed.), New Directions in International Trade Law, 1977, at 5 et seq.

3. Goldman, Archives de philosophie du droit 1964, at 177 et seq.

4. Fouchard, L'Arbitrage Commercial International, 1965, at 423 et seq.

5. Kahn, La Vente commerciale internationale, 1964, at 365 et seq.

6. See Juenger, Louisiana Law Review 2000 at 1133; Molineaux, J. Int'l Arb 2000, No. 1, at 147.

7. Heini, Festschrift Moser, 1986, at 67, 72, note 22.

8. Steindorff, in: UNIDROIT (ed.), New Directions for International Trade Laws, 1977, at 87, 100.

9. F.A. Mann, in: Carbonneau (ed.), Lex Mercatoria and Arbitration, at XX.

10. Gaillard, in: Berger (ed.), The Practice of Transnational Law, 2001, at 53, 63.

11. David, in: Int'l. Encyclopedia of Comparative Law, 1969, Ch. 5, at 212.

12. See Fortier, LCIA News, February 2001, at 5, 6.

13. Juenger, supra note 6, at 1140.

14. Goldstajn, J.Bus.L. 1961, at 12, 13; Kahn, supra note 5, at 365.

15. See Berger, in: Berger (ed), The Practice of Transnational Law, 2001, at 1, 15 et seq.

16. See Berger, The Creeping Codification of the Lex Mercatoria, 1999, at 231.

17. von Bredow, in: Lutz (ed.), Globalisierung und nationale Souveränität, Festschrift Wilfried Röhrich, 2000, at 159, 161 et seq.

18. See Hobe, Archiv des Völkerrechts 1999, at 253, 278 et seq. (public international law as a "transnational law of globalization").

19. See generally Böhm, in: Mestmäcker (ed.), Freiheit und Ordnung in der Marktwirtschaft, 1980, at 105 et seq.

20. See Schmidtchen/Schmidt-Trenz, Jahrb. Neue Politische Ökonomie 1990, at 3 et seq.

21. See Cooter, U.Pa.L.Rev. 1996, at 1643 et seq.; Bernstein, U.Pa.L.Rev. 1996, at 1765 et seq.

22. See for a fascinating 'in silico' approach to norm making Picker, Univ.Chic.L.Rev. 1997, at 1225 et seq.

23. Teubner, Rechtshistorisches Journal 1996, at 255; Teubner, in: Teubner (ed.), Global Law Without a State, 1997, at 5 et seq.

24. See for evolving modern European ius commune Berger, ZEuP 2001, at 4, 29; see also for public international law Slaughter/Ratner, Am.J.Int'l.L. 1999, at 410 ("the method is the message").

25. Juenger, in: Carbonneau (ed.), Lex Mercatoria and Arbitration, 2nd ed. 1997, at 265, 276.

26. Jhering, Der Zweck im Recht, Vol. 1, 6th-8th ed. 1923, at 249 (translation by the author).

27. Schmitthoff, supra note 1, at 37.

28. Canaris, in: Basedow (ed.), Europäische Vertragsrechtsvereinheitlichung und deutsches Recht, 2000, at 5, 10 et seq.

29. See Ripert, Rec.Cours 1933-II, at 569, 588.

30. Cf. Ripert, id., at 589.

31. See Kahn, in: Bonell/Bonelli (eds.), Contratti Commerciali Internazionali E Principi UNIDROIT, 1997, at 41, 42.

32. Hyland, Va.J.Int'l Law 1993/94, at 406, 425 et seq. citing from Pufendorf, De jure naturae et gentium libri octo, and Grotius, De jure belli ac pacis libri tres.

33. See Atiyah, An Introduction to the Law of Contract, 5th ed. 1995, at 7 et seq.

34. Zimmermann, ZEuP 1993, at 4, 30.

35. Coquillette, in: Petit (ed.), Del Ius Mercatorum Al Derecho Mercantil, 1997, at 143, 168 (citing from the Little Red Book of Bristol).

36. See Kötz, Europäisches Vertragsrecht, Vol. I, 1996, at 11.

37. Braeckmans, TvPr. 1986, at 1, 16.

38. Hyland, supra note 32, at 427 et seq. (citing Flour and Aubert).

39. See, e.g. ICC Award No. 1990, Clunet 1974, at 897; No. 3380, Clunet 1981, at 927; No. 5364, Clunet 1991, at 1059; see generally Berger, supra note 16, at 301 et seq.

40. Schmitthoff, supra note 1, at 6 (citing Judge Lagergren).

41. Gaillard, Int'l.Bus.Lawy. 1999, at 214, 221.

42. See Pfund, in: Carbonneau (ed.), Lex Mercatoria and Arbitration, 2nd ed. 1997, at 203, 205 et seq.

43. See Braeckmans, supra note 37, at 16; Galgano, Ann.Surv.Int'l.&Comp.L. 1995, at 99, 102; Gandolfi, Rev.trimestrielle de droit civil 1992, at 707, 710.

44. Galgano, id.; Gandolfi, id., stating that this lawmaking through contract practice is tending towards an 'éloignement progressif d'une vision étatiste du droit'.

45. Cf. Bonell, ICLQ 1978, at 413, 428: '...in interpreting commercial transactions, particularly when concluded at an international level, it is not sufficient to base oneself on the confidence which the parties might have established between themselves; due consideration must also be given to the expectation which the generality of the operators has of fair dealing in the respective trade sector'.

46. See for details of the CENTRAL Enquiry Berger/Dubberstein/ Lehmann/Petzold, in: Berger (ed.), The Practice of Transnational Law., 2001, at 91 et seq.; Berger/Dubberstein/Lehmann/Petzold, Int'l.Arb.L.Rev. 2000, at 145 et seq.; Berger, Int'l.Arb.Rep. September 2000, at 26 et seq. (= Association Suisse de l'Arbitrage Bulletin 2000, at 654 et seq.); see also Nottage, Vindobona Journal 2000, at 132, 136 et seq.

47. See Berger/Dubberstein/Lehmann/Petzold, in: Berger (ed.), The Practice of Transnational Law, 2001, at 91, 103 et seq.

48. Schmitthoff, International Trade Usages, 1987, No. 71: 'Substantive law is often born in the womb of procedure. In keeping with their international character, the law which these international arbitral bodies create is transnational. It is the new lex mercatoria.'; see also David, Le Droit du Commerce International,1987, at 127 et seq.

49. Berger/Dubberstein/Lehmann/Petzold, supra note 47, at 104.

50. Fouchard, L'Arbitrage Commercial International, 1965, at 445; Goodman-Everard, Arb.Int'l 1991, at 155, 161.

51. See Berger, supra note 15, at 7 et seq.

52. Berger/Dubberstein/Lehmann/Petzold, supra note 47, at 104 et seq.

53. Berger/Dubberstein/Lehmann/Petzold, supra note 47, at 105 et seq.

54. See Dasser, Internationale Schiedsgerichte und Lex Mercatoria, 1989, at 116; Osman, Les Principes Généraux de la Lex Mercatoria, 1992, at 322 et seq.

55. See, e.g. Delaume, ICSID Rev.-FILJ 1988, at 79 et seq.

56. See Bamodu, African Journal of Int'l. and Comp.L. 1998, at 31, 42 et seq.

57. See Molineaux, J.Int'l Arb. 2000, No. 1, at 147: ...there is apparently even a fourth, sub rosa, category: arbitrators who covertly support the lex mercatoria concept but do not want their predilection bruited about for fear of being labelled as devotees of an allegedly uncertain, unpredictable system'.

58. See Berger, supra note 15, at 14.

59. See UNIDROIT (ed.), The use of the UNIDROIT Principles in Practice, Results of the first inquiry undertaken by the Secretariat of UNIDROIT, 1997, at 2.

60. See Berger, 46 Am.J.Comp.L. 1998, at 129 et seq.; Bonell, An International Restatement of Contract Law, 2nd. ed. 1997, at 241 et seq.

61. Berger/Dubberstein/Lehmann/Petzold, supra note 47, at 107.

62. See Berger, supra note 16, at 183 et seq.; Berger, Festschrift Sandrock, 2000, at 49 et seq.

63. ICC Award No. 8486, Clunet 1998, 1047 with Note Derains, id., 1050 (English translation in Yearbook Commercial Arbitration XXIV (1999), at 162 et seq.).

64. Berger/Dubberstein/Lehmann/Petzold, supra note 47, at 108.

65. See Ferrari, Rev.int.dr.comp. 1996, at 813, 831; Schwarzenberger, Rec.Cours 1966-I, at 1, 9.

66. Berger/Dubberstein/Lehmann/Petzold, supra note 47, at 108.

67. See UNIDROIT, supra note 59, at 2.

68. Berger, supra note 15, at 2 et seq.

69. Cf. Kötz, RabelsZ 54 (1990), at 203, 209 et seq.: 'The initial question of any comparative work has to be ... posed in a purely functional manner, i.e. the problem under review has to be cleared in a hard-hearted manner from the systematic notions and values of one's own legal system and has to be formulated in a language which describes the problem in a manner that makes the inherent collision of interests understandable for every listener, whether lawyer or layman, German or not' (translation by the author).

70. Berger/Dubberstein/Lehmann/Petzold, supra note 47, at 109.

71. See F.A. Mann, BYIL 1957, at 20, 36: 'They [i.e. transnational legal principles] may, on occasion, be useful to fill a gap but in essence they are too elementary, too obvious and even too platitudinous to permit detached evaluation of conflicting interests, the specially legal appreciation of the implications of a given situation. In short, they are frequently apt to let discretion prevail over justice'.

72. See for an extensive discussion of standard arguments against the lex mercatoria Berger, supra note 16, at 43 et seq.

73. Berger/Dubberstein/Lehmann/Petzold, supra note 47, at 110.

74. Gaillard, supra note 10, at 64.

75. Gordon, Am.J.Comp.L. 1998, at 361 et seq.

76. Berger/Dubberstein/Lehmann/Petzold, supra note 47, at 111 et seq.

77. Gélinas, J.Int'l Arb. 2000, No. 4, at 117, 122.

78. See P. Nouel, Int'l.Bus.Lawy. 1996, at 22 et seq.

79. Gaillard, supra note 10, at 65.

80. Bonell, supra note 60, at 256 et seq.

81. See Lando, in: Weyers (ed.), Europäisches Vertragsrecht, 1997, at 81, 101.

82. See Working Paper on the Approximation of the Civil and Commercial Laws of the Member States of the Committee for Legal Affairs and Common Market Policy of the European Parliament of November 6, 2000, at 5.

83. Berger, in: Berger (ed.), The Practice of Transnational Law, 2001, at 120.

84. Bonell, Uniform Law Review 2000, at 469 et seq.

85. See supra note 1.

86. UNCITRAL Yearbook I (1968-1970), at 285, 286.


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