What role does Lex Mercatoria Play in international commercial contracts - Essay Example

? What Role does Lex Mercatoria Play in International Commercial Contracts? by The of the The of the The name of the school The city and state where it is located Date XX century was marked by the rapid surge in international economic relations, which led to an increase of the world trade volume and accelerated the trade turnover between partners from different countries. But amid the dynamic changes of relations in the international commercial turnover, the legal regulation of these relations did not undergo a radical transformation. Such means as collision and substantive rules of national legislation of parties in dispute or the provisions of international contracts were traditionally used. However, in recent years the existence of a certain group of relations, which regulation goes beyond the specified levels, manifested itself. These are relations developing in the process of international trade implementation. Trade has always been a key element in international relations. Due to trade, the exchange of knowledge, customs and traditions among different peoples occurred. Trade also encouraged the development of other economic activities (e.g., banking, insurance and so on.) Any actively developing phenomena require adequate regulation; otherwise, it is impossible to achieve the objectives, pursued by members of the international commercial trade. In this case, the mechanism of regulation must meet, on the one hand, the interests of the market, and, on the other - the needs of the participants of trade relations (Selden, 1995). Objective reality of today is the inability of national legislations to fully resolve the whole range of problems, arising in the process of international commercial turnover. Thus, lots of researches were puzzled with the question “how and in what ways international commercial trade should be regulated”. The answer was found when appealing the historical roots of the international trade regulation, which led to a revival of lex mercatoria concept. The idea of ??lex mercatoria appeared in the early 60-ies. Theoretical justification of its occurrence was a number of theories: a sociological theory of George Szell, according to which, certain groups within society create their own legal rules, so the international community of merchants also sought to establish some legal rules for organizing their community activity and their transactions; theory of legal pluralism by Santi Romano, according to which, legal systems are not monolithic, but are co-existing systems and subsystems; theory of natural law, as reflected in publications by Berthold Goldman (Wood, 1981). Lex mercatoria arose under the influence of positive and negative factors. The former includes the rapid development of international commercial turnover after World War II, the emergence of new organizational forms, such as transnational companies, as well as new kinds of international commercial contracts. Among the negative factors, which manifested themselves at the same period, were the shortcomings of the international legal method of these relations’ regulation. Experience in implementing international conventions exposed a lack of this unification method efficacy, due to complexity of developing the uniform rules by representatives of different legal systems, long time required for the ratification of international conventions, and a limited number of participants. Conventional method for legal unification of international contracts is largely dependent on such intra-national factors, as the position of the state, its legal system, legislation complex and legal system views and opinions. On the universal and regional levels, the greatest success was achieved in the field of law of conflict; as for substantive law unification, its results are more modest. Schlesinger and Gundlach (1964) had their own view upon the international commercial arbitration; they suggested that the traditional international commercial contracts, containing an arbitration clause, in the absence the applicable law, chosen by parties, should be subject to general principles of law and not to the rules and principles of some particular national legal system. The aspiration to create a uniform system of international contracts law revived, the idea of ??a single regime, which already existed in medieval Europe, independent of intra-law, in the form of the modern lex mercatoria. Law merchant, which existed in the Middle Ages, during the period prior to the formation of national legal systems, covering areas of international commercial relations, served as the basis for contemporary lex mercatoria. So, the prerequisites for lex mercatoria formation were as following: the desire to create merchants’ law and order, independent on the feudal lords, availability of professional traders engaged in international commercial transactions, similar ways of regulating such operations in different localities, the general understanding of the content of fundamental rights and responsibilities and the consequences of their failure. Such a system was ensured by the specialized commercial courts, which existed in the major port and trade fair centers. Thus, medieval Europe, where feudal lords’ rights prevailed over the state law, traders sought to withdraw their operations from their scope. This is one of the reasons for the priority development of maritime trade, when meeting with the sea pirates was plausible, while robbery, extortion and injustice of feudal lords in the land trade were inevitable. This approach was consistent with existing during the period of feudal fragmentation of Europe system of professional relations regulation in the form of rules of individual artisans’ shops. The second prerequisite of the European medieval law merchant was the unity of Christian ideology (never experienced during the struggle of Catholicism and the reformation), as it is reflected in canon law. With such faith, proclaiming the same moral in-territory values, formation and application of similar commercial exchange rules were implemented with the least difficulty (Selden, 1992). Significant global-historical events, occurred after World War II (emergence of new socio-political orientation, almost complete collapse of the colonial system, strengthening the UN role, creation of political and economic unions) were the impetus for the development of international economic relations. After destruction of former colonial relationship former metropolis sought for some different legal means of processing the existing trade flows, including foreign investment; it was necessary to move from substantive to technological division of labor, as well as to find some new legal ways for access to developing countries’ raw materials. In turn, these countries, without having strong and experienced in international commercial contracts organizations, wishing to resist some western companies, skilled in this area, as well as wishing to maintain control over some important strategic sectors of economy, give public companies the right to conclude and implement such contracts. During this period a contractual form of economic interaction between states appeared; it was represented by private individuals (state development contracts). The UN has recognized by them as civil law transactions, called non-diagonal agreements (Selden, 1992). Thus, throughout the history of trade relations development, there was a special method of regulation of such relations, which essentially boiled down to self-regulation. The reason for its existence was an extreme dynamics and the variety of international commercial relations, entailing the ineffectiveness of the national regulatory framework. Lex mercatoria is a set of rules of conduct, worked out by the members of international commercial turnover in the course of their activities and applied in a dispute by international commercial arbitration. Scope of the lex mercatoria is a set of relations, emerging in the international commercial traffic, including direct trade relations (the relations arising during the implementation of trade operations), and the relations, playing the supporting role. Lex mercatoria source system consists of a set of non-state, powerless regulators of international trade, i.e. rules of conduct, as well as of acts which do not have universally valid legal power and which become mandatory to the subjects of international trade in the case of direct or indirect refusal of any national norms application. A characteristic feature of lex mercatoria norms is their international nature. These norms are worked out by the international business community in the process of its activity. Involvement of lex mercatoria norms into the process of legal regulation is carried out by means of applying the customary international trade standards and using lex mercatoria in the formulation of regulations, as well as in the case of recognition and enforcement of foreign arbitral awards. Establishment of lex mercatoria standards is completed by means of international commercial arbitration practice, empowering such standards with the regulatory properties. Taking into consideration the increasing possibility of settling international commercial disputes without using the national law of the participating countries, it is expedient and advisable to settle such disputes under the rules of lex mercatoria only. Currently, lex mercatoria can be viewed as the most effective regulator of international trade, in contrast to the traditional conflict regulation; standards of lex mercatoria are developed and authorized to be used by participants only. In this regard, it is appropriate to admit the possibility of using not only conflict methods, but also lex mercatoria standards for dispute resolution. Lex mercatoria is necessary for multinationals, participating in diagonal relations, as such participation leads to the use of a number of civil-legal regulatory methods and registration of such relations between their members in the form of international commercial contracts, using concepts, traditional for such contracts, including specifics of rights and obligations harmonization between the parties, damages as the primary means of protection , the base exemption from liability, arbitration clause and the applicable law. Lex mercatoria is often used as is the applicable law, which, in this context, refers to general principles of law, including international law, legal principles, shared by civilized nations, soft law, etc. Thus, the regulation of relations from international commercial contracts, including such contracts with the state and its organs’ participation, reflects the peculiarities of subject structure of such relations and implemented at two levels: civil and legal contracts in the form of diagonal arrangements, concluded between the direct participants in economic cooperation, are complemented by interstate intergovernmental, multilateral and bilateral agreements, as reflected in the international law relevant agreements. Thus, lex mercatoria is a complex phenomenon, peculiar to the third and fourth periods of unification of international commercial contracts. Contents of lex mercatoria reflects its complex nature and includes a broad set of prescriptions, consisting of the universally recognized principles of international law, principles of civil liability law, which coincidence in different legal systems results in a generalization of such principles as "particular" unification within the program of UNIDROIT and Lando’s Commission (1985), model contracts and other recommendations made by intergovernmental and nongovernmental organizations. Appearance of lex mercatoria is an evidence of the private international law inability to perform the function of legal regulation in the field of foreign trade operations, by using the method of conflict only. In this sense, the concept of lex mercatoria, on the one hand, is a challenge and alternative to traditional private international law, a law, based on theoretical principles of legal positivism, and proves the reality of the existence of an autonomous legal order, which is at the same time denied by positivism – there is no law out of a state (Draetta, 2000). On the other hand, lex mercatoria can not exist without private international law, since some of the most important institutions of contract law must always be regulated by not lex mercatoria, but by national legislation, with the help of conflict method. For example, issues such as contractual capacity, taxation, antitrust legislation and environmental protection should always be regulated by the law of country's court (lex fori). Lex mercatoria is a relatively new phenomenon, and it is in the process of formation. Hence, the imperfection and lack of certainty of this law can be observed. In principle, one can agree with lawyers who believe lex mercatoria is “soft law”, i.e. a set of norms that have sooner moral and political than legal power. However, one should add that although the lex mercatoria and can be viewed as a soft law, at the same time it is not weak and is rapidly moving towards “hard law”, i.e. the lex perse, under the globalization tendency. Lex mercatoria is closer to the transnational commercial community, since being fairer and more convenient means of legal regulation of relations between the subjects of this community. The attractiveness of lex mercatoria to international businessmen and representatives of multinational corporations is due, primarily, the fact that its rules are relatively simple in comparison with the complexity of national legal systems’ rules. Moreover, lex mercatoria is a fairer law, because the relations between, for example, two businessmen from different countries are governed not by the legislations of the one businessman’s country , but by the third, autonomous legal order, which is equally familiar to both businessmen. Lex mercatoria also performs an important function in filling legal vacuum between the different national legal systems and between national and international public laws. The further lex mercatoria fate is not predetermined in advance and, to a considerable extent, depends on whether private international law is able to find the way out of the current crisis (Draetta, 2000). If private international law, ultimately, copes with its problems and takes up greater unification of national legal systems, then, probably the concept of lex mercatoria, which is not fully formed yet, will decline. Ultimately, there is a close relationship between lex mercatoria and international private law, as scientific currents, and they do not negate, they sooner complement and enrich one another. Moreover, we must agree with professor Dovhert (2003), stalwart of lex mercatoria, considering this concept as an organic part of "true private international law", which has a global natural-legal essence. However, now our global society, as it was noted above, is experiencing a powerful tectonic shift in economy and culture, associated with the transition from industrial to post-industrial society, from modern to postmodern culture that can influence the content of modern law (Booysen, 1997). Methodological basis of postmodern science and culture is "methodological pluralism" and even what Paul Feyerabend calls “methodological anarchism” (Selden, 1995). Its methodological credo is “anything goes!” Generally speaking, the main slogan of the era of postmodern law is “unity is in diversity”. Thus, lex mercatoria is a universal regulator of relations, developing during the international commercial circulation. References Booysen, H 1997. Is International Law Relinquishing its exclusive public law nature? Tulsa Journal of Comparative and International Law. 4(5): 219. Draetta, U, Lake, R, Nanda, V 2000. Breach and Adaptation of International Contracts. An Introduction to Lex Mercatoria. California: Stanford University Press. Lando, O 1985. The Lex Mercatoria in International Commercial Arbitration // International and Comparative Law Quarterl, 34: 747. Selden, B 1995. Lex Mercatoria in European and U.S. Practice: Time to Take a Closer Look// Annual Survey of International and Comparative Law, 2(3):112. Trackman, L 1988.The law Merchant: The Evolution of Commercial Law. Littleton: Littleton Press. Wood, P 1981 Law and Practice of International Finance. New York: Transnational Publishers, Inc. Read More