What is “lex mercatoria”? How can it be used in the settlement of international commercial disputes? What are its strengths and weaknesses in this role?
The term lex mercatoria is derived from the Latin
to mean “merchants’ law”.[1]
From a historical perspective, the lex
mercatoria was established in order to regulate the business dealings of
merchants in particular places, such as markets, fairs, and sea ports.[2]
The distinguishing factors of the lex
mercatoria from standard local and international laws are fundamental.
Firstly, the rules were and remain transnational, meaning that they are not
limited by the boundaries sketched out by geographical maps and legal
jurisdictions.[3]
However, like the codification of the common law in England which continued to
pick up pace after the Norman Conquest and the Battle of Hastings and was
derived by a collection of the local laws,[4]
the lex mercatoria was derived by
considering the established rules through which merchants operated.[5] A
further difference from the national and local laws is the fact that these
rules were derived out of equitable fairness as opposed to principle.[6]
The advantage of such a process in business transactions being the comparative
rapid speed with which these laws were administered.[7]
It is argued that the
need for the lex mercatoria has grown
with globalisation as countries are no longer as discrete as they once were.[8] It
is now very common for business transactions to involve parties from different
countries, and when there are parties from different countries the disputes
that can often arise can lead to an internal dispute as to which of the
respective countries’ laws should apply. The use of the lex mercatoria can be a good way of circumventing the possibility
of such disputes and can also remove concerns of not knowing and understanding
the intricacies of the laws of the other jurisdictions. The other advantage of
the lex mercatoria is that it can
work well to remove undesirable elements of different national laws which some
transactions many find unattractive – therefore the use of the lex mercatoria can make a business
transaction more attractive.[9]
Equally, the business will find arbitration using the lex mercatoria more attractive as it is generally cheaper than
standard litigation.
But is the lex mercatoria enforceable in a national
court? The New York Convention on Arbitration allows national courts to review
decisions to turn to arbitration and there is a discretion to not allow them to
be enforced. This adds a level of uncertainty as parties may fear that their arbitration
decision may be reviewed and this can make the use of the lex mercatoria somewhat less attractive.
However, there is a
final advantage to mention. As mentioned, the use of equity and fairness as
opposed to precedent in relation the lex
mercatoria means that the arbitrators are not confined to the contours of
precedent which can hinder needed business development within the law. However,
given the above concern in relation to the New York Convention, one can be
forgiven for questing just how flexible arbitration really is.
In sum, the flexibility
and ease of the lex mercatoria is
attractive to businesses, but enforcement in national courts needs
strengthening.
[1] Mads
Henry Andenæs and Camilla Baasch Andersen, Theory
and Practice of Harmonisation, (Edward Elgar Publishing, 2012), 394.
[2]
Harold Berman and Colin Kaufman, ‘The Law of International Commercial
Transactions (Lex mercatoria)’ (1978)
19(1) Harvard International Law Journal 221,
225.
[3] Ibid.
[4] Richard
Schaffer, et al. International Business Law and Its Environment, (Cengage Learning,
2009), 76.
[5]
Berman, H. and Colin, K. fn.2, 225.
[6] Ibid.
[7] Ibid.
[8] Fn.1, 393.
[9]
Ole Lando, ‘The Lex mercatoria in
International Commercial Arbitration’ (1985) 34(4) I.C.L.Q. 747, 748.
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