University of New South Wales Faculty of Law Research Series
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Last Updated: 31 August 2011
THE TWENTY-FIRST CENTURY LAW MERCHANT
Leon E. Trakman, University of New South
Wales[*]
Citation
This
paper will be published in American Business Law Journal(2011), vol.48,
no.4(forthcoming). This paper may also be cited as [2011] UNSWLRS 32.
Abstract
This article examines the multifarious conceptions of
the Law Merchant, focusing on its attributes as a spontaneously ordered and
plurally autonomous framework of law. Part I considers the economic rationale
that the Law Merchant has evolved spontaneously. Part
II investigates the
autonomy values that are associated with a Law Merchant system, the degree to
which those values are commensurable
with one another, and the prospects of
mediating among them. Part III considers whether the Law Merchant is truly an
independent
merchant system, whether it is uniform in nature, and whether it has
resisted fragmentation through its localization within domestic
legal systems.
Parts IV and V, evaluate the extent to which a liberalized Law Merchant has
evolved into the twenty-first century,
the influence of micro-economic interests
such as the autonomy rights of merchants upon it, and the practices of
nation-states in
“nationalizing” or
“trans-nationalizing” it structurally, substantively, and
procedurally. Part VI examines
the extent to which these features can be applied
to the example of transnational arbitration. The article concludes that abstract
notions of a cohesive Law Merchant, entailing romantic conceptions of its
origins and current subsistence, are to be discouraged.
Instead, greater
attention should be given to particular facets of the Law Merchant as it exists
in the transnational commercial
world today, especially the ways in which a
universalized Law Merchant interacts with regulation at domestic and multistate
levels.
Mercantile law is not the law of a particular country but the law of all nations.[1]
INTRODUCTION
Operating
in environments in which domestic influences on law are pervasive and vary from
place to place, the Law Merchant that originated
in medieval times is often
envisaged as cosmopolitan in nature, transnational in reach, and expeditious in
application.[2] According to this
contention, the magnificence of the Law Merchant is that it is not subject to
the territorial jurisdiction of local
authorities, but functions as a
self-regulating regime run by transnational merchant judges and set apart from
domestic law and local
rulers.[3] Its
court system¾the embodiment of the Law Merchant
at work¾satisfied the trans-regional interests
of itinerant merchants, who travelled with their goods and wares from port to
port, fair to
fair, and market to market. The purpose of the Law Merchant was as
much for merchant judges to facilitate the resolution of disputes
between
parties as it was to impose decisions on
them.[4]
In
support of these views, local rulers favored the development of a universalized
Law Merchant system, independent of local
courts and local law because of its
economic and political value to them and the communities within their
realms.[5] Opposing these views is
the proposition that the Law Merchant and merchant justice never was, nor is,
distinct, uniform, cosmopolitan,
or trans-regional in nature or operation. Nor
is it grounded in the spontaneous practices of merchants, but instead it derives
from
territorial measures, which local princes invoked to regulate itinerant
merchants within their territorial
regimes.[6] The tale of the Law
Merchant’s autonomy, or independence, is simply that: a tale to disguise
the extent to which local rulers
exerted territorial control over the local
activities of trans-regional merchants for economic and political
benefit.[7] However romantic the
portrayal of the Law Merchant may be, it falls short of reality. Far from being
developed consciously to serve
as a uniform system of law, it is little more
than the uneven convergence of local customs into a body of merchant practices
referred
to loosely as the Law Merchant. The result, at best, is a variable
institution that reflects the disparate social, cultural, and
political values
of local authorities, courts, communities and merchants at distinct moments in
time, place and space.[8]
The purpose of this article is to examine the multifarious conceptions of the
Law Merchant, with particular focus on its attributes
as a spontaneously ordered
and plurally autonomous framework of law that has trans-regional application in
relation to mercantile
transactions. I scrutinize the history of the Law
Merchant as a supposedly cosmopolitan system of “law” and examine
the
nebulous existence of a modernized Law Merchant in the twenty-first century.
I explore the manifestation of a modernized Law Merchant
through the example of
transnational arbitration.
In Part I, I consider the economic
rationale that the Law Merchant has evolved
spontaneously.[9] In Part II, I
investigate in particular the autonomy values associated with a Law Merchant
system,[10] the degree to which
those values are commensurable with one another, and the prospects of mediating
among them.[11] I then explore, in
Part III, whether the Law Merchant is truly an independent merchant system,
whether it is uniform in nature, and
whether it has resisted fragmentation
through its localization within domestic legal
systems.[12] In Parts IV and V, I
evaluate the extent to which a liberalized Law Merchant has evolved into the
twenty-first century, the influence of micro-economic interests such
as the autonomy rights of merchants upon
it,[13] and the practices of
nation-states in “nationalizing” or
“trans-nationalizing” it structurally, substantively,
and
procedurally.[14] I examine, in Part
VI, the extent to which these features can be applied to the example of
transnational arbitration.
I conclude that abstract notions
of a cohesive Law Merchant, entailing romantic conceptions of its origins and
current subsistence,
are to be discouraged. Instead, greater attention must be
focused on particular facets of the Law Merchant as it exists in the
transnational
commercial world today, especially the ways in which a
universalized Law Merchant interacts with regulation at domestic and multistate
levels.
I. THE LAW MERCHANT AS AN AGENT OF “SPONTANEOUS ORDER”
The
Law Merchant is sometimes depicted as an exemplification of “spontaneous
ordering,” a libertarian concept popularized
by philosophers like Karl
Friedrich Hayek.[15] Merchants
supposedly devised merchant law out of merchant practice and usages
spontaneously, or in liberal terminology, freely and
voluntarily.[16] Central to the
allegedly “spontaneous ordering” of trans-regional merchants are
three factors: the value placed on the
autonomy of merchants to interact at
will; the separation between spontaneously evolving merchant laws and peremptory
laws imposed
on them by municipal law; and a utilitarian priority accorded to
merchant laws derived from merchant practice as distinct from other
sources of
law.[17]
Merchants are autonomous in being free to conclude agreements, such as to make
choices of law and arbitration to suit their
mercantile
expectations.[18] The source of
their autonomy resides in merchant laws crafted by merchant judges out of
merchant practice, not domestic laws imposed
on merchant
practice.[19] The inferred result is
a merchant-determined regime of merchant rules and procedures, rooted in natural
rights,[20] which responds
spontaneously and efficiently to the needs of transnational merchants. Efficient
in nature, this regime reduces the
transaction costs of merchant traders,
including the costs of governmental intrusion into their private
affairs.[21]
Historically, the vitality of the Law Merchant depended on its satisfying
merchant expectations; the ease with which merchant
courts used it to resolve
merchant disputes; and the virtue of it not being trammeled by kings, princes,
dukes, abbots, or elected
officials.[22] Typifying the
spontaneity of the Law Merchant is the proposition that merchants freely
determined the price of goods, while merchant
judges decided whether that price
was “just” and “reasonable” according to mercantile
perceptions of fairness
and
expediency.[23]
A
contrary rationale is that, insofar as the Law Merchant exists today, it is not
fully integrated, unquestionably cosmopolitan,
or distinct from national law. No
matter readily merchant codes embody the usages of merchants, those usages are
not spontaneously
conceived by transnational
merchants.[24] Far from being the
natural outgrowth of merchant practice, merchant laws are authorized by legal
authorities,[25] and they coalesce
around planned not spontaneous legal concepts and
remedies.[26] The result is a Law
Merchant that is driven by national and transnational authorities as much as by
merchants; that is pre-planned
as much as it is spontaneously combusted; and
that is efficient and fair primarily according to how those concepts are
construed
by legal authorities in discrete
cases.[27]
Nor
even among libertarian scholars is a spontaneous order discordant with a legal
order. Libertarians themselves argue
that the common law exemplifies a system of
spontaneous ordering.[28] Inasmuch
as the decisions of judges give the common law its spontaneous “fluid
drive,” merchant judges arguably give
the Law Merchant its fluid
drive.[29]
The
pervasive problem about grounding the Law Merchant exclusively in a spontaneous
order is in treating that order as pivotal
in transforming merchant practice
into merchant law.[30] It is
unlikely that stratified groups of medieval merchants in diffuse merchant trades
devised a self-operating order based on merchant
practice, either naturally or
by design. It is also doubtful that modern merchants regulate their affairs
spontaneously in the face
of commercial codes that are driven more by legal
requirements than by merchant
institutions.[31]
II. THE DOUBTFUL AUTONOMY OF THE LAW MERCHANT
Assessing
the independence or autonomy of a plural conception of the Law Merchant invites
different accounts of its origins, operative
features, and political
significance. Imputing different autonomy values to it helps determine whether
and to what extent those
values complement or contradict one another and how
they do so in discrete merchant
contexts.[32]
An
initial observation is that the words “autonomy” and “Law
Merchant” do not provide a consistent
account of how merchants regulate
their own affairs institutionally, systemically, or functionally. The
consequence of such inconsistency
is a malleable conception of autonomy that
encompasses a range of culturally and politically imbued values under the rubric
of a
Law Merchant.[33] For example,
the medieval Law Merchant was purportedly autonomous as an institution. That
institutional autonomy derived from the
character of the Law Merchant as an
independent system functioning apart from other systems, rather than from the
autonomy of merchants
who functioned within
it.[34] In contrast, the
sixteenth-century Law Merchant was characterized not by its institutional
autonomy as a system, but by the autonomy
of individual merchants to interact at
will in terms of it.[35] Framed in
light of liberty of the person, sixteenth century merchants enjoyed a liberty to
contract.[36] They were not bound by
an institutionalized Law Merchant, but by their freely concluded
agreements[37] and their duties to
perform those agreements “in good
faith.”[38]
A
twenty-first century Law Merchant supposedly includes and extends beyond both
the institutionally autonomous Law Merchant and the
autonomy of individual
merchants. The central issue is how it does so in fact, and with what
effect.[39]
A. Institutional Versus Individuated Autonomy
The distinction
between the institutionalized autonomy of the medieval Law Merchant and a
liberalized modern Law Merchant is determined
contextually, not a priori.
Included in that context are functional values encompassing different kinds of
institutional independence and different measures
of individual
autonomy.[40]
Consider the proposition that the medieval Law Merchant represented a
self-standing institution governing the conduct of
merchants, such as by
institutionalizing a system of merchant jurors. Now consider that medieval
merchants also entered into “pacts”
with one another, which medieval
merchant courts enforced.[41] The
inference arising from medieval merchants concluding pacts is that the
institutional autonomy of the medieval Law Merchant included
the capacity of
individual merchants to conclude those pacts.
Contrast this with a
liberalized Law Merchant in which transnational merchants engaged in
transregional trade as “free”
agents.[42] Now consider that
merchant contracts were subject to institutional constraints, such as compliance
with domestic public policy. The
inference is that the individual autonomy of
merchants in a liberal society included the institutional regulation of their
otherwise
“free”
action.[43]
Now
consider a twenty-first century transnational Law Merchant in which merchants
choose institutions to regulate their
disputes, such as by choosing to have
their disputes resolved according to the laws of a particular legal system.
Contrast that autonomy
with national and transnational regulations that
constrain the freedom of merchant judges, notably arbitrators, to reconcile the
choices of merchants with national or multistate
policy.[44] One view is that
merchants enjoy autonomy to contract, subject to how effectively and fairly they
exercise that autonomy, such as
how they negotiate agreements governing the
settlement of their disputes. Another view is that twenty-first century
merchants do
not enjoy per se rights at all, but instead entitlements bestowed
on them by state or multistate regulators. Here the Law Merchant
is as much
about the privileges that state or multistate regulators accord to transnational
merchants selectively as it is about
a universal system of practices driven by
merchants.[45] It is also about the
strategies transnational merchants with sufficient resources and political
influence use to navigate through
existing trans-national, national, and local
laws in choosing the law of the contract rather than in choosing no law at
all.
A tentative conclusion to draw from this analysis is that the
liberal values ascribed to a twenty-first century Law Merchant stem
neither from
autonomous merchant practices, nor from peremptory legal directives imposed by
states on them, but from a functional
permutation that includes but also
supersedes both. The autonomy of a post-liberal Law Merchant is subject, first,
to a plural assessment
of merchant-responsive ways of regulating their own
affairs. That plural assessment includes, among other factors, the cultural,
political, and economic interests of transnational merchants in shackling
themselves to, or freeing themselves from, the territorial
constraints of state
authorities.[46] The autonomy of a
post-liberal twenty-first century Law Merchant is further contingent on the
reason for and manner in which nation-states
unilaterally or multilaterally
regulate merchant institutions and individual merchants. These issues are
addressed below.[47]
B. The Plural Boundaries of Autonomy
According to a plural
account of the Law Merchant, any measure of autonomy reflects the value
preferences of those who subscribe to
it or consider themselves bound by it.
Such a plural analysis invites a plurality of accounts, or non-accounts, of the
perceived
nature and significance of different autonomy values without
subjugating any one a priori to the others.
[48]
The first measure of
autonomy is the formal independence of the Law Merchant from other legal or
merchant orders. An illustration
is the formal independence of pre-medieval
merchant codifications—like the Rolls of Oléron and the Laws of
Rhodes—from
local laws and
customs.[49] The second measure of
autonomy is the functional independence of Law Merchant institutions, for
instance the functional independence
of the eighteenth-century merchant court in
Paris from national law courts.[50]
The third measure of autonomy is the substantive autonomy of merchant laws, such
as the development of a distinctive conception of
the “just price”
in the Law Merchant.[51] The fourth
measure of autonomy surrounds procedural autonomy, like the procedures by which
assemblies of merchants participated in
deliberations at the medieval fairs of
St Ives.[52] The fifth measure of
autonomy is the functional attributes imputed to Law Merchant institutions, such
as the functional attributes
of Piepoudre, or “dusty feet,” courts
in regulating merchant disputes
expeditiously.[53] The sixth measure
of autonomy arises from the independence of the Law Merchant from other sources
of law, such as from Roman and
canon law.
[54]
These different measures of
autonomy do not exhaustively define the Law Merchant. Indeed, there is the view
that the Law Merchant
never was institutionally, formally, substantively, or
functionally autonomous at all.[55]
What makes different accounts of the autonomy of the Law Merchant important is
that they provide divergent and not always compatible
accounts of Law Merchant
values.
III. THE FOUNDATIONS OF THE LAW MERCHANT
Who were medieval
and post-medieval merchants and judges? To what extent did merchant justice
operate independently of local rulers,
courts and laws? These questions provide
an institutional and functional framework within which to consider a variety of
autonomy
values that impact on the relationship between merchant law and
merchant practice.
A. Out of Their Own Needs
The eighteenth century
jurist, William Blackstone, grounded the post-medieval Law Merchant of his day
in merchant custom, which he
viewed as universal in application, independent of
municipal law and local rulers, and guided by the demands of transnational
trade.
In Blackstone’s words:
[A] particular system of customs . . . called the custom of merchants, or lex mercatoria . . . is . . . allowed, for the benefit of trade, to be of the utmost validity in all commercial transactions . . . . [A]s these are transactions carried on between subjects of independent states, the municipal laws of one will not be regarded by the other.[56]
Blackstone’s view of the Law Merchant arguably was
inspired as much by how he thought it ought to function, as how it operated
in
fact. His portrayal of it as autonomous from municipal law reflects his concern
that it should not be subject to municipal demands
that might otherwise stratify
and destabilize it. His depiction of it as a uniform body of transnational law
based on merchant practice
represents it as a stable regulatory system suited to
England’s position as a maritime
power.[57]
Blackstone also
identifies key autonomy values with the Law Merchant: transnational merchants
govern their own affairs. They rely
on an informal, expeditious, and prompt
system of justice that suits their mercantile
needs.[58] They trust in
merchant-driven rules and procedures implemented by expert merchant judges. In
particular, the following elements are
fundamental: (1) merchant judges are
chosen from the ranks of merchants according to their knowledge of merchant
practice and their
standing among merchants; (2) they decide whether merchant
usages are reasonable and fair; and (3) they weigh the need for predictable
decisions against the virtue of responding to discrete merchant
expectations.[59]
What follows are responses to these propositions as they relate to
autonomy values associated with the Law Merchant.
1. Truths
Consider the proposition that
Law Merchant courts provide merchants with prompt, expeditious and expert
justice. A hypothesis favoring
both the procedural and substantive autonomy of
the Law Merchant is that judges who have an understanding of merchant practice
are
best equipped to understand disputes between other merchants and to tailor
their decisions to accord with reasonable merchant expectations.
The further
hypothesis is that, in combining mercantile and adjudicative experience, they
deliver informed and orderly remedies befitting
the needs of the merchant
parties.[60] Illustrating such
remedies are those delivered by Piepoudre Courts, in which the mayor of the
town, the bailiff of a borough, or
a steward presided at the market
fair.[61] Merchants with
“dusty feet” secured prompt, expert, and enforceable remedies from
Piepoudre Courts, such as payment
for and delivery of goods as those merchants
moved with the incoming and outgoing tides, from port to port, and from town to
town.[62]
A
challenge to these hypotheses is that Law Merchant judges were not invariably
merchants themselves, but included local
officials, clerics, and influential
members of local communities, whose primary assets were reverence,
respectability, or holding
an office within a local authority. The presiding
officer at the medieval fair of St. Ives was the local steward or sheriff, a
public
official; and deliberations there included an “assembly of
suitors” upon whom the prompt delivery of justice was somewhat
contingent.[63] Parish priests
presided over the Parisian Merchant Court in the post-medieval eighteenth
century, and they played an even greater
role outside of Paris, where
experienced merchant judges were less readily
accessible.[64] As a result, the
historical notion of justice being delivered by expert merchant judges within an
autonomous Law Merchant system,
insulated from non-merchant influences, is both
institutionally and functionally suspect.
A further
challenge is that the “law” in Law Merchant was not autonomous from
other bodies of law. Concepts
like ex aequo et bono were espoused in
Roman and canon laws well before the Law Merchant, and they were propagated by
merchant and non-merchant courts
alike.[65]
Another challenge to the independence of Law Merchant justice was the interplay
between local and itinerant influences on
deliberations before merchant
courts.[66] Rulings of merchant
courts also varied from win-lose determinations to facilitation between merchant
parties.[67]
Finally, the vision of merchant proceedings responding to merchant needs must be
tempered by consideration of the impact
of local authorities on those
proceedings.[68] In granting
licenses and exemptions—to merchant guilds, fairs, markets and
towns—local authorities sought to maintain
stable relationships between
merchants and the local community, to promote domestic employment and industry,
and to preserve local
law from foreign influences. These interests influenced
the support of local authorities for Law Merchant proceedings and, in turn,
the
conduct of Law Merchant courts.[69]
2. Romantic Propositions
A romantic
image of Law Merchant justice is of politically connected merchants exerting
influence through their surrogates in the
courts of kings, and through their
economic impact over guilds, fairs, and markets. With notable exceptions, such
as associations
of merchants organized by merchant
guilds,[70] trans-regional merchants
historically did not wield significant political or economic influence, except
within their immediate merchant
circles. They were not considered members of a
noble profession, although some were financed, usually anonymously, by nobles
who
tacitly provided them with access to circles of
influence.[71]
Local rulers also had good reason to encourage the administration of merchant
justice within their realms.[72]
After all, they profited from rents, fees, and fines paid by merchants at
guilds, fairs, and towns, which went into royal or noble
coffers.[73]
B. The “Law” in Law Merchant
Central
to the perpetuation of the Law Merchant is the proposition that it is based on
merchant practice as distinct from law stricto sensu. Merchant judges
employ informal proceedings to respond to the immediate demands of merchants,
such as by considering trade usages
of merchants who dealt in perishable goods,
and by reacting to fluctuating prices or irregular sources of supply in volatile
markets.[74] Reinforcing a
situation-responsive perception of merchant justice is the view that merchant
judges decide cases according to that
which they consider fair and good, or
ex aequo et bono “outside of law,” rather than according to
that which the substantive rules of law transcending merchant expectations
require of them.[75]
This proposition that the Law Merchant is not really about law at all, but about
merchant practice, raises several interrelated
questions. If merchant judges
decide disputes according to merchant practices that are somehow
“outside” of law, what
is the nature of those merchant practices? If
the Law Merchant is primarily about merchant practice, why is it referred to as
the
“Law” Merchant? If Law Merchant judges base their decisions on
conceptions of fairness and goodness, do they derive those
conceptions from
merchant practices, or additionally from precepts that transcend those
practices? These questions are considered
historically below, and contemporarily
in Part V.
1. A Spectrum Approach
One explanation
for the “law” in Law Merchant is that medieval and post-medieval
judges alike delivered merchant justice
along a spectrum from non-law to law;
and that this spectrum explains the relationship between merchant law and
merchant practice.
Early along the spectrum, judges decided disputes based on
that which they deemed fair and good in mercantile practice, this because
there
was no applicable law other than merchant practices and usages upon which
reasonably to draw.[76] Farther
along the spectrum, judges decided cases according to merchant practices that
became “informal” law, such as
when they treated merchant custom as
evidence of informal law. Here, a merchant usage gave rise to merchant law if it
satisfied underlying
evidential tests, such as the usage being sufficiently
widely and consistently practiced to constitute a cognizable merchant
custom.[77]
An
institutionalized Law Merchant emerges when informal law becomes
“formal” law, as when the decisions of merchant
judges are formally
consolidated into civil law commercial codes and judicial precedents into common
law. Typifying such civil law
codifications is the incorporation of the
conception of good faith in contracting into national commercial
codes.[78] Depicting the adoption of
informal law into the common law is the so-called “writing
obligatory,” by which creditors
freely transferred debts without relying
on complex forms of proof and powers of
attorney.[79]
The
supposed result of these three stages is a merger of informal, non-law and
formal law into a blended system of substantive
and procedural law. A reasonable
analogy to this development is the growth of the law of equity informally
outside of the common
law during the incubation period of English law, followed
by its formal incorporation into the common law through such declarations
as the
Judicature Act of 1873.[80]
2. The Influence of Value Pluralism upon the
Law Merchant
According to a plural account of the Law
Merchant,[81] merchant courts
transposed merchant and non-merchant practice into law by taking account of a
microcosm of plural values beyond their
characterization as informal and formal
law.[82] In support of that plural
account are the propositions that the Law Merchant evolved incongruently over
time, place, and space;[83] that it
varied in form and substance from market to market, fair to fair, and port to
port;[84] and that it impacted
diffusely upon foreign merchants, local merchants, and consumers alike.
Viewed critically, the Law Merchant was “nothing but a heterogeneous lot
of loose undigested customs, which is impossible to
dignify with the name of a
body of law.”[85] A less
critical account holds that the substantive content of the Law Merchant was not
hermetically sealed from other legal
systems.[86] The Law Merchant was
subject to universal law, or the ius
gentium.[87] It was guided by
Roman and canon law.[88] It adapted
concepts like bono fidei agreements from Roman
law.[89] It applied concepts like
ex aequo et bono to merchant
transactions.[90] It incorporated
notions like trust and confidence into merchant
pacts.[91] It enforced good faith
dealings between merchant parties, and it adapted doctrines like pacta sunt
servanda to render pacts
binding.[92]
The Law Merchant was also subject to disparate regulatory regimes. For instance,
local authorities granted preferential
treatment to select classes of merchants
based on their discrete trades and the nature of their investments in the local
economy.[93]
C. Drawing Inferences
In short, it is improbable that the pre-liberal
Law Merchant was insulated—formally, functionally, substantively, or
procedurally—from
the dictates of local authorities, clerics, non-merchant
elites, or local communities. Given their dissimilar backgrounds, education,
wealth, and trade experiences, imputing collective authorship of the Law
Merchant to merchants as a generic class is improbable.
First, it disregards
differences across classes of merchants, such as differing statutes applicable
to merchants dealing in certain
specific
staples.[94] Second, itinerant
merchants usually had limited knowledge about the operation of merchant courts
unless they happened to engage in
volatile trades, they occupied positions of
merchant leadership, or they had prior exposure to Law Merchant
disputes.[95] Third, most medieval
merchants had humble roots, and only some had such vocational education as trade
apprenticeships.[96]
Finally, while leading figures in organized trades such as merchant guilds
influenced merchant practice, their impact on the
formulation of merchant law
was the exception not the rule.[97]
Medieval merchants who occupied positions of privilege in comparatively free
merchant towns, fairs, and guilds, enjoyed limited personal
autonomy in an era
in which personal freedom was an anathema. Even common law concepts like
caveat emptor attributed to the Law Merchant probably entered the common
law by error, conceivably with unclear substantive roots in Roman and
canon law,
as well as in the Law
Merchant.[98]
None
of this refutes the functional impact of merchant practice upon the growth of
subsequent commercial laws, such as the
“writing obligatory” as an
informal method of proving a debt, or the power of attorney as an instrument of
agency in
merchant trading. What is in doubt is that the Law Merchant was either
institutionally or functionally insulated from other systems
of law, that
merchant judges invariably resolved merchant disputes expertly and efficiently,
and that merchant law was determined
exclusively by and for transregional
merchants to the exclusion of other legal, political, and social influences. It
is one thing
to inflate Law Merchant practices into a self-sustaining merchant
system. It is another to treat those practices as the solitary
source of
merchant law, and to sequester them from the “official law” of local
authorities.[99]
One can marvel at the magnificence of pre-medieval and
medieval merchant codes like the Laws of Rhodes and the Rolls of
Oléron,
so long as one appreciates that those codes were not formulated in mercantile
seclusion, but in light of local, regional,
and transregional
demands.[100] One can laud the
palpable commitment of merchant courts to adopt expeditious merchant
proceedings, so long as one recognizes constraints
on those proceedings in
response to countervailing non-merchant interests.
IV. MODERNIZING THE LAW MERCHANT
An important aspect
remaining is to explore the nature and limits of a modernized Law Merchant, not
with respect to its isolation
but in light of the autonomy of merchants ascribed
to it. Three propositions underlie this exploration.
The first is that
the “liberalization” of the sixteenth century Law Merchant meant
exactly that: the freedom of merchants
to choose among institutions, including
national and transnational legal systems, as an expression of their free will.
The second
proposition holds that however liberalized the sixteenth century
world order had become, the resulting Law Merchant continued to
replicate
institutionalized autonomy values imbedded in its medieval roots. The third
proposition is an amalgam of the first two:
the modernization of the Law
Merchant affirmed the free choice of transnational merchants, but that autonomy
also entailed choosing
among competing Law Merchant and non–Law Merchant
institutions. These three propositions are best studied in light of the
principal
components attributed to a modernized Law Merchant, including
perceived strengths and limitations associated with each of
them.[101]
A. Core Components of a Modernized Law Merchant
The following are the central attributes of a modernized Law Merchant:
There are several challenges to these components. The first is to establish
whether the descriptors of a modern Law Merchant—independent,
autonomous,
transnational, and practice-oriented—are trite artifacts rather than
verifiable facts. The second challenge is
to determine how a modernized Law
Merchant can be cosmopolitan and uniform in character if nation-states modify it
differently to
suit their domestic requirements under the rubric of state
sovereignty. The third challenge is to assess how a modernized Law Merchant
can
accommodate multifaceted transnational economic and political directives, while
still being explicated as an “autonomous”
Law Merchant
system.[108] In the rest of this
Part, I address each of these challenges in light of the autonomy values
ascribed to the modern Law Merchant
that initiated my analysis.
B. A Liberalized Law Merchant
That merchants in modern
liberal democracies enjoy the right to autonomy from both state and
transnational incursion is a contestable
proposition.[109] Such autonomy is
most evident in their procedural and substantive freedom to select local,
regional, national, or transnational institutions,
laws and processes to govern
their private relationships. It encompasses their rights to make choices of law
and forum, as by excluding
national—or
transnational—law.[110] As
an illustration, merchants use their contracts consensually to choose the
venue of their transnational dispute, for instance in the place where
they conduct most of their business, where their key executives or
witnesses are
located, or at venues between their respective
offices.[111] They also adopt
institutional compromises, such as when merchants from third-party jurisdictions
consent to arbitration before the
International Chamber of Commerce (ICC) in
Paris to resolve their
disputes.[112]
There are several potentially contradictory assumptions relating to the autonomy
of transnational merchants to make choices
of law in particular. The first is
that they have the inherent autonomy, as freely consenting parties, to choose
national or transnational
law, or neither. The second is that, whatever they
choose, nation-states still can assert sovereign authority over transnational
merchants. The third is that transnational merchants are subject to multistate
laws insofar as nation-states delegate their sovereign
authority to multistate
institutions, or multistate institutions abrogate that sovereign authority.
The first assumption, that transnational merchants are free to
make choices of law, or no choices of law, is reflected in
the libertarian
proposition that maximized free choice is essential to the unchecked flow of
goods and services in transnational
markets, and that both state and multistate
regulation of those markets stultifies initiative and discourages profitable
‘private’
commerce.[113]
A
functional response to the claim that the Law Merchant represents a free market
is that the protection of merchant autonomy over
transnational trade and
investment should not be assumed a priori. The issue of whether
transnational merchants make informed, efficient, and fair choices of law must
be verified, not presupposed.
Whether merchant autonomy is justified in fact
depends on how transnational merchants make choices, and how nation-states and
the
multilateral community construe the efficiency and fairness of those
choices, taking account of both self-interest and
altruism.[114]
The second and third assumptions—that merchants ought to be subject to
national regulation, transnational regulation,
or both—are intended to
limit the free and voluntary acts of merchants for principled, pragmatic, and
moral reasons. The principled
reason is that the autonomy of modern merchants to
exercise acts of free will does not stem from their per se rights to trade or
invest, but from states granting them privileges to do
so.[115] Those privileges arise
multilaterally, such as through the action of organizations like the World Trade
Organization (WTO). They
arise bilaterally, for example, when home and host
states conclude investment treaties for the benefit of each other’s
nationals.[116] In each case, the
supposition is that foreign merchants have only such entitlements as are
bestowed on them through state or multistate
action, as distinct from those
arising as of right.[117]
The pragmatic rationale for both state and multistate regulation of foreign
merchants is that, because foreign merchants are non-nationals,
they ought to
enjoy no greater autonomy than the sum of privileges that individual states
choose to bestow on them in light of countervailing
domestic
aspirations.[118] Reinforcing this
rationale is the conjecture that privileges granted to foreign merchants are
comparable to the licenses medieval
rulers granted to merchant associations such
as medieval guilds.[119]
The moral rationale for states constraining the free choice of merchants is that
merchants’ rights to individual autonomy are
contingent on their
functional capacity to exercise such autonomy in fact. As an illustration, a
party might not exercise free will
in succumbing to a choice of another party,
in directing a dispute to a forum sympathetic to that other party, in leading to
an unenforceable
contract provision, or in forcing a settlement under the
dubious guise of amiable composition in contracts of
adhesion.[120]
In combining these principled, pragmatic and moral reasons, transnational
merchants enjoy privileges, as distinct from rights.
Their privileges derive
from the manner in which nation-states affirm or limit the liberalization of
merchant trade altruistically
or self-interestedly, as distinct from the per se
rights of transnational merchants to trade or invest across national boundaries
at will.
C. A Regulated Law Merchant
In this part, I shall
concentrate on the relationship between state and multistate regulation of
transnational trade and investment.
In particular, I consider how states can
nationalize the Law Merchant to suit domestic expectations while also affirming
its transnational
application, possibly at variance with those
expectations.[121]
The logical rationale for multilateral relation is similar to the rationale for
unilateral regulation: to impose public constraints
on private self-ordering by
merchants.[122] The difference is
that rather than individual states imposing those constraints upon merchants,
states expressly or impliedly consent
to or acquiesce in multilateral
regulation. Alternatively multilateral regulation might prevail over state
regulation without either
states’ consent or acquiescence. States’
explicit or implicit consent to multilateral regulation of state-investor
disputes
can be illustrated thus: investment relationships between states and
foreign investors are too complex for nation-states to regulate;
multilateral
regulation facilitates the transparent, ordered, efficient, uniform, and fair
resolution of such disputes; or states—and
merchants—simply favor
state over multistate
regulation.[123]
States yield to multistate regulation of foreign investment by tailoring their
sovereign independence around their interdependence
with other states and by
imposing domestic requirements upon foreign investors that are consistent with
multilateral requirements.[124]
For example, they conclude bilateral investment agreements in which standards of
treatment accorded to merchants from host states
embody multilateral
standards.[125] In regulating
financial transactions, they preserve the transnational attributes of negotiable
instruments, adapting them to suit
domestic financial, banking, and consumer
requirements in accordance with transnational
practice.[126]
These responses nevertheless do not reconcile contests between state sovereignty
and multilateral authority, when states
neither affirm nor acquiesce in
multilateral regulation, or they act contrary to it. For example, states deny
foreign investors internationally
prescribed standards of treatment in response
to domestic interests they consider more legitimate, or simply necessary, to
protect.[127] The result is a
range of possible action by states: they can expressly or impliedly comply with
international requirements; they
can pay lip service to those standards; they
can treat them as only one among other competing standards; or they can
disregard them
entirely.
A different contest arises when
states acting multilaterally sublimate the sovereignty of non-consenting states.
For example,
the majority of states in a multilateral organization like the
United Nations fail to require that states pay full compensation in
return for
expropriating property from foreign investors. Such action reflects a conviction
among some developing states that full
compensation is unduly onerous, given
their systemic and historical economic
disadvantages.[128]
One way of reconciling the tension between self-regulation and state or
multistate regulation of trade and investment is by
subscribing to two social
contract theories. The first social contract is between a state and its
citizens, to whom the democratically
elected government of that state is
accountable. This first accords with established liberal theories of
representative governance.[129]
The second social contract is a treaty compact, by which nation-states delegate
their sovereign powers—including in relation
to social contracts with
their citizenry—to multilateral
institutions.[130] One result of
these two social contracts is a compact by which a state reserves sovereign
power to regulate trade and investment
through an agreement of representation
with, and for the betterment of, its citizenry. The other result is a compact by
which that
state concludes a regional or global agreement with other states to
protect multilateral interests that include, but may diverge
from, the domestic
interests of any one treaty party including those of its citizens.
An “in principle” difficulty arises when a social contract and a
treaty compact conflict, as when the delegation
of sovereignty by a state to the
multilateral community conflicts with its social contract with its own citizens.
An ancillary difficulty
occurs in differentiating between the exercise of state
sovereignty by individual states, such as in respect of merchants within
their
jurisdiction, and the exercise of state sovereignty extraterritorially, such as
through multilateral state action.
Responding to both
difficulties is challenging when nation-states absorb—and co-opt—the
Law Merchant into their
domestic legal systems not only differently but also
inconsistently with the duties they assume by
treaty.[131] One response is
nationalistic. In incorporating the Law Merchant disparately into their discrete
domestic legal systems, nation-states
are responsible to their citizens to
construe the multilateral regulation of trade and investment in accordance with
national security
and public order
considerations,[132] conceivably
including the need to shield domestic markets from incursions by foreign
investors.[133]
An alternative response is that, once states have abrogated their sovereignty by
treaty to multilateral institutions, they
are so bound even if that entails
denying rights to their own citizens as a
consequence.[134] For example, a
state is bound to enforce the rights of a foreign investor arising from a
regional investment treaty, even if those
rights conflict with the rights of
domestic investors under local
law.[135] The result is that a
state may operate at polar extremes. On the one extreme, a state that accedes to
a multilateral investment treaty
expressly or impliedly agrees to apply that
treaty consistently, evenhandedly, and transparently. On the other extreme, it
is bound
not to do so contrary to rights arising out of the countervailing
social contract with its own
citizens.[136] A middle ground
includes establishing substantive criteria by which states can retreat from
their delegation of sovereignty to transnational
institutions due to
countervailing responsibilities to local interests, as when they decline to
fully compensate foreign investors
if doing so conflicts with forum
policy.[137]
What accentuates this tension between individual autonomy and state or
multistate action is that the liberalized Law Merchant
never has resolved it
effectively. Following the displacement of feudal fiefdoms and the growth of
nation-states’ territorial
sovereignty in the sixteenth century, states
incorporated merchant customs, practices, and usages into their domestic
commercial
codes in deference to transnational merchant
practice.[138] However, they
domesticated transnational merchant practice differently in response to local
demands.[139] These differences
between a transnational and domesticated Law Merchant were never fully mediated,
either conceptually or functionally.
The result is an ongoing tension between
nation-states not wanting to tear down bridges that grant transnational
merchants access
to local markets and their unwillingness to forego their formal
sovereign claims to regulate that access. What complicates that dialectic
is
dissension within the multilateral community of states over the limits of state
action. And the tension persists today, for example
in relation to transnational
arbitration.[140]
D. A Uniform Law Merchant
The uniform law movement
of the mid-twentieth century represents an effort to reaffirm the continuity of
the Law Merchant by universalizing
it.[141] This uniform movement is
evident in international codes such as the United Nations Convention for
Contracts on the International
Sale of Goods
(CISG),[142] adopted by such
bodies as the United Nations Commission for International Trade Law
(UNCITRAL)[143] and the
ICC.[144] It is also perceived as
both a formal and a substantive affirmation of the Law
Merchant.[145]
A structural critique of the uniform law movement is that it is less about the
“merchant” in Law Merchant than
about harmonizing the laws and legal
cultures of different national
systems.[146] The driving force
behind the uniform law movement, in effect, is to reconcile competing¾and often parochial¾common and civil law traditions, and is only
secondarily to provide transnational merchants with expeditious and cost
effective rules
governing their trade and
investments.[147] A further
criticism is that, in perpetuating a Western legal tradition, the uniform law
movement has marginalized customary legal
traditions
elsewhere.[148]
A functional critique of the uniformity of laws revolves around a growing
disjuncture between global trade bodies like the
WTO,[149] the regionalization of
trade through organizations like the European
Union,[150] and the North American
Free Trade Agreement (NAFTA),[151]
and the fragmentation of trade within a plethora of bilateral trade and
investment agreements.[152] In
particular, this transformation from multilateral accord after the Second World
War to the proliferation of trade and investment
agreements today has had a
profound impact on both the institutional and functional autonomy of the Law
Merchant. Wealthy trading
nations of the West remain financially dominant over
global trade, but developing states now have the formal capacity to dictate
the
agendas of multilateral institutions such as the WTO due to their dominant
numbers and ability to vote as a bloc.
One result is efforts
by developing states to construct a trade and investment Law Merchant that
accommodates their systemic
needs. A countervailing result is that developed
states conclude bilateral agreements that sideline the WTO, while developing
states
comply in order to protect their fragile economies, which the WTO cannot,
or will not, protect. The product is an institutional and
functional
twenty-first century Law Merchant in which trade and investment law have
proliferated along bilateral
lines;[153] and which—as a
result of conflicting state and multistate interests—is less cosmopolitan,
cohesive, and uniform than
it has historically
been.[154]
A
tentative conclusion is that, in practice, the uniform law movement does less to
unify the Law Merchant than to justify
the adoption of one set of domestic
commercial laws over others, along legal more than mercantile lines. Another
conclusion is that
the liberalization, nationalization, and
trans-nationalization of the Law Merchant are more about efforts to nationalize
transnational
legal cultures than the autonomy of any Law
Merchant.[155] The practical issue
is not to jettison uniform commercial laws for being subject to such cultural
penchants, but to draw sustainable
lines of intersection between different legal
cultures in order to apply uniform laws pragmatically in real merchant
contexts.[156]
V. LOOKING AHEAD
Lying
ahead is the specter of three competing national and transnational Law Merchants
in action. The first kind of Law Merchant is
national in nature; it includes
individual states nationalizing the Law Merchant unilaterally, primarily in
their own interests,
and less importantly in promoting the institutional
autonomy of a transnational Law Merchant system. The second kind of Law Merchant
is explicated by nation-states together subscribing to a transnational Law
Merchant consisting of a blend of bilateral, regional,
and multilateral
treaties, and customary international laws. Here, the transnational Law Merchant
is impelled more by the macro-economic
and political authority exerted by blocs
of states than by the discrete expectations of transnational merchants in
general. The third
kind of Law Merchant still, and based on the
sixteenth-century liberalized lines, is one in which transnational merchants
engage
in self-regulating contractual and non-contractual behavior, varying from
maintaining trust and goodwill in their informal relationships
to incorporating
good faith duties into their contracts. These three kinds of Law Merchant are
not mutually exclusive, nor do any
of them mortally wound the others. What is
contestable is the role each plays in relation to the others in sustaining a
twenty-first
century Law
Merchant.[157]
There is an important final determinant in analyzing the functional autonomy of
a twenty-first century Law Merchant. It
is that neither state nor multistate
regulation of the Law Merchant is antithetical in principle to transnational
merchant practice.
Law Merchant regulations in both medieval and modern times
are functionally modeled, to varying degrees, on “good practice”
among merchants. The question is whether and to what extent such models are
compatible. I deal with these issues
next.[158]
A. A Twenty-First Century “Quasi-Public” Law Merchant
A
critique of public regulation of transnational trade and investment is that the
exercise of both unilateral and multilateral sovereignty
by states potentially
privileges some merchants over others. Coupled with this is the critique that
merchant corporations enjoy “quasi-public”
privileges derived from
their economic dominance within transnational markets.
One
way of redressing these critiques in the regulation of transnational trade and
investment is to subscribe to the Law
Merchant as an interdependent global
“village.”[159] That
village encompasses an ever expanding assembly of transnational merchants that
have revitalized structural and functional autonomy
to secure access to
transnational markets from which they were historically excluded. This new world
order is also manifest in speedier
and more accessible means of travel, and in
ever enhanced and more sophisticated modes of communication available to
transnational
merchants.[160]
Illustrating this “new” twenty-first century Law
Merchant is a Cyberspace Law Merchant. Demonstrated by cyberspace
contracts and
voluntary associations in cyberspace, the Cyberspace Law Merchant is depicted as
a self-ordering private regime that
facilitates good practice by, among others,
online merchants.[161] In
communicating instantly and en masse, transnational merchants embed their
cyber-practices through sophisticated e-marketing, e-development, e-negotiation,
and e-contracting
practices. [162]
They engage in self-regulation by sharing their e-market intelligence on price
gouging practices, product defects, and failure of
price competition in mass
e-markets.[163] They use
e-mediation and e-arbitration services to resolve disputes online in
anywhere-anyplace actions, including against dominant
cyber-corporations.[164]
State and multistate regulators support this reinvigoration of a universal Law
Merchant. They scrutinize exclusion-of-liability
clauses in e-contracts to
determine whether they are procedurally and substantively unconscionable. They
redress bargaining abuses
by striking unfair provisions from e-contracts; and
they prosecute anti-trust violations in transnational
commerce.[165]
This imputation of expansive institutional and functional autonomy to a
twenty-first century “private” Cyberspace
Law Merchant is
nevertheless flawed. Its first defect arises from the quasi-public dominance
over e-supply markets by large scale
transnational suppliers. The second fault
emerges as a consequence of nation-states affirming that economic dominance, by
granting
economic privileges selectively to transnational merchants—at
variance with both the institutionalization of a universal twenty-first
century
Law Merchant and the rights of merchants to fair treatment within it. Take the
e-commerce illustration. However seemingly
free new classes of cyber-merchants
are depicted, real private choices are exercised predominantly by e-merchant
corporations with
ready access to sophisticated economic data, informed legal
advice, and the political power to impose boilerplate terms on limitedly
resourced and often transient merchant
dependents.[166] These e-merchants
exercise their market dominance by erecting high cost and high stakes economic
barriers to entry.[167] They use
both contractual and non-contractual practices to regulate
e-markets.[168] They aggressively
deflect claims that they have engaged in anti-competitive e-market
practices.[169] They deploy
multi-tiered processes of dispute avoidance strategically, varying from
standardizing dispute resolution clauses meant
to discourage time consuming
negotiations, to erecting barriers to face-to-face arbitration and commercial
litigation brought against
them.[170] Added to the
quasi-public regulatory authority of cyber-corporations is their political and
economic muscle to secure trade and investment
concessions from governments that
are economically motivated to privilege them over other
merchants.[171]
Nor are such quasi-public powers peculiar to dominant e-merchants in e-markets.
Take the illustration of an investment Law
Merchant.[172] The perceived
benefit of investment treaties stem, not from the per se autonomy rights
of home state merchants to invest in host states, but from the nature of the
investment preferences they acquire as
a result of particular investment
treaties between those home and host
states.[173] The challenge to a
universal investment Law Merchant is that host states grant differentiated
benefits to investors from treaty
partners[174] at the expense of
merchants from non-treaty
states,[175] and conceivably also
at the expense of domestic markets, employees, consumers, or the local
environment.[176]
Ultimately, the extent to which the benefits of trade and investment treaties
are fairly distributed is contextual, not
pre-determined.[177] It is at
least arguable that privileging some transnational merchants over others not
only inheres in any Law Merchant; it may well
enhance it. First, the benefit of
modern states concluding investment agreements by which home states secure
benefits for their citizens
who invest in host state treaty partners is not
necessarily inconsistent with benefits to transnational trade and investment in
general.
Second, bilateral trade and investment agreements may expand upon the
total volume of transnational trade and investment, even though
they may skew
the benefits in favor of investors from treaty partners. The unequal
distribution of a higher volume of trade under
a modern investment Law Merchant,
arguably, is better than the equal distribution of a lower volume of trade in
the absence of such
selective treatment. The inference here is that fair trade
does not constitute equal
trade.[178] Third, far from
constituting the death knell of the Law Merchant, the selective treatment of
transnational merchants is replete throughout
its history. Transnational
merchants were never equally economically or politically powerful¾or powerless. Medieval guilds enjoyed significant
economic and political advantages as a result of local statutes and treaties,
which
accounts in part for their
successes.[179]
These arguments favoring selective treatment among foreign investors are not
sacrosanct. Take the illustration of the costs
and benefits to host states in
granting preferential tax treatment to home state investors in return for
increased domestic investment.
So long as the increase in tax collections
outweighs the lost revenue arising from tax preferences to treaty partner
investors, the
benefits of the preference arguably outweigh their
costs.[180] The problem is not
that such a cost benefit analysis is unreliable; it may be quite accurate. The
problem is in construing the maximization
of investment benefits and the
minimization of costs as the “good” rather than as one
consideration among others in determining that
“good.”[181]
B. A Twenty-First Century “Public” Law Merchant
A complex matter is how
to apply competing national, transnational, regulatory, and self-regulatory
models to a twenty-first century
Law Merchant. The issue is not that
multifaceted models of regulation liberalize, nationalize, or transnationalize
the twenty-first
century Law Merchant. They may well do all these things. The
issue is how each model redresses the tension between the exercise of
sovereignty by nation-states and the autonomy values that treaties ascribe to a
self-regulating Law
Merchant.[182]
The first
assumption behind an idealized Law Merchant is that it is self-regulating:
self-regulation by merchants of their trade and
investment outweighs the
normative value of nation-states and multi-state authorities imposing
regulations upon them. The second
assumption is that merchants self-regulate by
default, either in the absence of any state or multistate regulation, or where
they
consider such regulation ill-fitting, inefficient, or
unfair[183]—such as in
restricting transnational trade. Neither regulatory nor self-regulatory models
are self-evidently good or bad.
The question is how they affirm preferred
propositions about the Law Merchant: that a regulatory model functions
consistently and
fairly in a discrete merchant
context,[184] and that it promotes
the efficient and expeditious regulation of merchant markets. Such
determinations can only be reached ex post,
not decided ex
ante.[185]
The virtue of
applying a regulatory model to foreign direct investment depends on its nature,
stated or implicit purpose, and how
it satisfies that purpose in a specific
case. Its fairness and efficiency is contingent upon the purpose of state,
multistate, private
and corporate models of investment regulation and how they
satisfy the purposes ascribed to them. For example, are preferential standards
of treatment in gaining entry into a market efficient? Do they lead to
disproportionate benefits to foreign investors? One problem
arises when these
standards are applied disproportionately, as when one foreign investor receives
national treatment and another
investor from the same home state does not.
Another problem is when standards of treatment, such as the “most favored
nation”
standard, are so generalized that they regress into a minimalist
standard of treatment.[186]
Addressing these problems lies at the core of a sustained analysis of a
“new” twenty-first century Law Merchant. The
determination reached
ultimately depends to a significant degree on the prioritization of such values
as promoting private, informal
and merchant-centric rules of regulation. The
fact that regulators diverge over the nature and significance of these
priorities is
the ongoing challenge.
VI. AN ILLUSTRATION: TRANSNATIONAL ARBITRATION
A residual question
is whether there is a fitting self-regulatory model of the twenty-first century
private, informal, and expert
Law Merchant worth aspiring towards; and if so,
how it functions in light of competing regulatory models. The self-ordering of
transnational
arbitration is based on these overarching inferences about the
autonomy of merchants.
First, twenty-first century merchants exercise
an ever-widening sphere of individual autonomy in choosing the form, substance,
and
process of transnational arbitration to regulate their disputes. Second,
they incorporate into their contracts merchant responsive
rules and procedures
to govern that arbitration, such as fast-track arbitration, online document
filing, video conference and podcasted
hearings. Third, transnational
arbitration serves as an expeditious anywhere-anytime method of dispute
resolution, enabling parties
and arbitrators to communicate directly with one
another from diffuse locations across the
globe.[187] Fourth, transnational
arbitration is depicted as an autonomous institution that is able to accommodate
widely scattered and diverse
trade and investment
disputes.[188] Fifth, national
courts recognize transnational arbitration both formally and functionally; they
sometimes require merchants to submit
their disputes to
it;[189] and they generally
enforce arbitral awards.[190]
Finally, transnational arbitrators are depicted as being neutral between
consenting merchant parties and as deciding merchant disputes
at neutral
venues.[191]
In
its most ambitious incantation, transnational arbitration is portrayed as the
philosophical, structural, and functional
embodiment of a private Law Merchant
at work. Arbitration is presented as multi-tiered and capable of being
integrated with other
forms of dispute resolution including dispute
avoidance.[192] It is depicted as
an informal, expert, cost effective, and expeditious process of dispute
resolution. It is idealized as a widely
recognized institution, endorsed by
nation-states such as the parties to NAFTA Article
2022.[193] It is also conceived as
being institutionally and functionally autonomous. Merchants adopt private
transnational models of arbitration,
such as the Model Arbitration Rules
promulgated by the United Nations Commission on International Trade Law
(UNCITRAL).[194] They incorporate
the rules and procedures of various private transnational, regional, and local
arbitration centers into their private
transnational contracts; they also rely
on nation-states to enforce arbitral awards under those rules and
procedures.[195] The question is
whether these self-regulatory attributes of transnational arbitration are
over-embellished and if so, to what extent.
A. Exemplifying the Law Merchant
At
a macro level, transnational arbitration is merchant-centric, expeditious in
operation, and cosmopolitan in effect. Not unlike
medieval courts operating at
fairs, towns, and markets, transnational arbitration takes place at leading
trade centers across the
globe. It is conducted under the auspices of such
centers as the International Chamber of Commerce, headquartered in
Paris,[196] the International
Center for Dispute Resolution of the American Arbitration Association (AAA),
located in New York,[197] and the
London Court of International Arbitration (LCIA), situated in
London,[198] among many
others.[199]
Further
imbedding transnational arbitration as an exemplification of a self-regulating
Law Merchant system is the mushrooming of regional
and local arbitration centers
that provide arbitration venues, rosters of arbitrators, arbitration procedures,
literature on arbitration,
and continuing education services leading to
fellowships such as those offered under the auspices of the Chartered Institute
of Arbitrators.[200] These centers
serve, inter alia, as impartial and low cost venues that merchants choose
to resolve their transnational
disputes.[201] They differentiate
their services from those of national courts on the basis of lower costs, faster
and less formal proceedings,
and the mercantile experience of the
arbitrators.[202] They market
their successes by demonstrating the extent to which large scale merchant
disputes are resolved by center-administered
arbitration, as distinct from
national courts of law.[203]
Transnational arbitration is also institutionalized in the
“private” tradition of the Law Merchant. Private arbitration
centers
compete with one another for arbitration business, not unlike medieval rulers
who competed for the business of itinerant
merchants.[204] National courts,
too, support transnational arbitration by enforcing arbitration awards other
than on the exceptional grounds of
arbitral incompetence or a failure of natural
justice.[205]
Arbitration proceedings, in turn, are depicted as
“commercial” and “informal.” They are based on the
parties’
courses of dealings and usages of trade; and they are untrammeled
by formal procedures of national law
courts,[206] unless the parties
stipulate otherwise.[207]
Nation-states, too, submit to arbitral jurisdiction, such as in
investor-state disputes brought by investors against treaty
partners.[208] Arbitrators
appointed to decide such investor-state disputes sometimes hold states
accountable for unfairly “taking”
the property of foreign investors
in violation of equitable and fair
treatment.[209]
B. Diverging from the Law Merchant
The value of
transnational arbitration as the embodiment of a twenty-first century Law
Merchant is nevertheless not impregnable. At
one extreme, arbitration is prompt,
affordable, and decisive. At the other extreme, it is complicated, expensive,
and sometimes a
mere stage preceding the judicial review of the arbitral
awards.[210] Transnational
arbitrators are more experienced in transnational commerce than national courts.
Conversely, arbitrators are subject
to challenge, inter alia, on grounds of
their competence to deal with complex commercial
issues.[211]
The
illustration of e-arbitration underscores these extreme views. E-arbitration is
conceived as an efficient means of avoiding detailed
arbitral records, drawn out
face-to-face proceedings, endless deliberations, and convoluted arbitral
awards.[212] In contrast, the
e-filing of documents, e-hearings, and e-awards are challenged as displacing
formal document exchanges with unreliable
online filings, replacing personalized
hearings with mechanized e-proceedings, and reducing arbitral awards to
e-templates prepared
by e-arbitration associations in advance for arbitrators to
complete online.[213]
Even the central proposition that transnational arbitration is private
is contestable. Despite “choosing” arbitration,
merchant parties
face a myriad of variations of it, including dissimilar arbitral rules and
procedures.[214] Arbitral
proceedings sometimes are unfamiliar to merchants; arbitral awards are
determined ad hoc; they do not set precedents that
facilitate business
planning.[215]
Similarly,
the “public” proposition that transnational arbitration laws and
procedures are uniform and cosmopolitan in
nature is contradicted by the
different services provided by a plethora of local, regional, and international
arbitration centers,
which sometimes mirror their operations on national
courts.[216] A further challenge
to arbitration is that statistical and other reports verifying its efficiency
and fairness are impressionistic
and
anecdotal.[217] Nevertheless, some
arbitral decisions are in the public record—notably investment
arbitration[218]—and are
embodied in an expansive opinio juris.
C. The Limits of Autonomy
The acid test of an
Arbitration Law Merchant is the extent to which transnational merchants freely
choose arbitration. Depicting their
free choice, merchant parties restrict, just
as they expand, arbitral discretion through prescriptive choices of law and
jurisdiction
clauses.[219] In
doing so, they prohibit arbitrators from deciding by amiables composition
or ex aequo et bono, or otherwise outside of the
law.[220] They avoid arbitrating
in jurisdictions where the courts are likely to enforce awards on national
interest grounds.[221] They rely
on courts of law to incorporate merchant practice into law on the assumption
that merchants and their arbitrators have
a better grasp of merchant needs than
do courts of law and other institutions of sovereign
states.[222]
In contrast,
arbitrators circumscribe the private choices of law made by merchants.
Transnational arbitrators sometimes defer to forum
law on grounds that non-forum
law chosen by the parties is unclear, not sufficiently widely understood, or not
reasonably accessible
or
proven.[223] They decline to reach
awards ex aequo et bono, not only on grounds that the disputants did not
authorize them to do so,[224] but
also because the arbitrators consider it “lawless” to decide outside
of law,[225] and because prominent
international jurists frown on arbitral awards being reached ex aequo et
bono.[226] Arbitrators also
apply domestic law, such as consumer protection and anti-trust, in order to
avoid jurisdictional challenges on national
interest
grounds,[227] or as a challenge to
arbitral competence.[228]
Arbitration awards are also subject to nullification by national courts of law
for violating forum public policy, such as under Article
V of the New York
Convention on the Recognition and Enforcement of Foreign Arbitral Awards of
1958.[229]
The final
issue is whether transnational arbitration operates on a level playing field. An
a priori argument that supports the existence of a level playing field is
that, in making a choice of law by contract, merchant parties accede
to
processes and determinations arising from
arbitration.[230]
In
contrast, it is arguable that, however a priori the autonomy of merchants
to choose arbitration may be, that choice still favors merchants from developed
states,[231] such as the choice of
the dominant merchant’s home state or primary place of business, thus
resulting in an uneven playing
field.[232] Global arbitration
centers are located in expensive cities that are cost prohibitive for parties
from developing states.[233]
Complex arbitration proceedings benefit parties that are familiar with complex
models of commercial
litigation;[234] and a
disproportionately high number of arbitrators emanate from developed regions
like Western Europe, the United Kingdom and the
United
States.[235] Nation-states
sometimes contribute to this uneven playing field, for example by sponsoring
state-directed arbitration that advantages
nationals over
non-nationals,[236] or by
nullifying arbitral awards on parochial
grounds.[237]
D. A Rejoinder
Beauty ultimately lies
in the eyes of the beholder; particular cases often have as much to do with
beauty as with tradition. The expediency
of transnational arbitration is an
aspiration as much as an accomplishment. The right of transnational merchants to
freely choose
arbitration depends on the extent to which they enjoy autonomy in
fact.
In principle, the strengths and limitations of transnational
arbitration depend on one’s viewpoint. For example, judicial decisions
are
ordinarily based on the public record and are subject to public scrutiny. On
other hand, arbitral proceedings and awards are
generally private and
confidential. The virtue of each depends on the value contest between closed
arbitral and open judicial hearings
and confidential arbitration awards and
published judicial
opinions.[238]
In practice,
transnational arbitration is neither institutionally nor functionally
independent of other institutions. It operates
along a chain of
institutionalized options, varying from self-regulation by merchant parties to
judicial regulation of their disputes
through the civil litigation that
sometimes follows arbitration. In this last case, merchant autonomy is both
formally and functionally
constrained by substantive laws and procedures adopted
by national courts.
CONCLUSION
An
inventive twenty-first century Law Merchant encompasses an ever-expanding
variety of cosmopolitan merchants seeking private avenues
in which to trade and
invest across national boundaries. On the one side is a spontaneously ordered
Law Merchant in which merchants
transact freely, unrestricted by intrusive state
and multistate authorities. On the other side, they are subject to trade and
investment
preferences that state and multistate authorities grant to them
selectively.
At a superficial level, medieval, liberal and twenty-first
century Law Merchants have common attributes: a uniform, informal, prompt,
and
efficient system of merchant law derived from merchant practice that is applied
expertly to trans-regional trade and investment.
At a functional level, the
idealized image of a fully-perfected transnational Law Merchant system that
replicates a self-ordered
medieval predecessor is unfounded. In principle, the
individual liberty of modern merchants differs in kind from the institutional
autonomy imputed to medieval merchant institutions. In practice, treating the
twenty-first century Law Merchant as the quintessence
of a spontaneously
self-ordered liberal Law Merchant popularized by twentieth-century liberal
scholars flies in the face of a stratified
community of twenty-first century
traders and investors, who are only loosely conceived as “transnational
merchants.”
The greatest risk to the development of a twenty-first
century Law Merchant is in championing abstract conceptions of it, in treating
the relationship between merchant law and merchant practice as sacrosanct, and
in romanticizing about the inviolable spirit of “the”
Law Merchant.
A preferable pathway is to explore the multifold features of a stratified Law
Merchant and to critically assess how
it functions in discrete cases. There are
several challenges along this path. One challenge is to establish a balance
between self-regulated
and regulated merchant practice in transnational markets
that vary from mass cyber-markets to complex investment markets. Another
challenge is to differentiate between multistate policy¾and politics¾by which
states affirm or deny merchant autonomy in response to insular economic and
political demands. Yet another challenge is to
differentiate between the Law
Merchant as a formal system of justice and as a vibrant process by which
merchant judges facilitate
the resolution of merchant disputes.
[*]Professor of Law & Immediate
Past Dean, Faculty of Law, University of New South Wales; B.Com. LL.B. (Cape
Town), LL.M., S.J.D.
(Harvard). I dedicate this article to the memory of the
late David Cavers, Harold Berman, and Arthur von Mehren, whom I was privileged
to have as doctorate supervisors on this topic at the Harvard Law School. I owe
particular thanks to Stewart Macaulay for more recent
comments, Kunal Sharma and
Shu Zhang for their research assistance, the Social Sciences and Humanities
Research Council of Canada
for research support, and the University of New South
Wales for a sabbatical to complete this
article.
[1]Luke v. Lyde, [1759] EngR 18; (1759) 97
Eng. Rep. 614, 618 (K.B.); [1759] EngR 18; 2 Burr. 882, 887 (Lord
Mansfield).
[2]The Law Merchant has
its historical roots in medieval times. Since then, its definition has undergone
significant change and remains
disputable, at best. At its core, the Law
Merchant refers to a transregional system of self-regulation, enforcing
customary “laws,”
inspired from merchant practice, to govern
mercantile transactions, irrespective of the immediate locations of the
transactions or
the nationalities of the merchants. This article examines
further the plurality of features that contribute to the organization and
autonomy of the historical as well as modern Law Merchant.
On the medieval
Law Merchant, see GERARD MALYNES, CONSUETUDO, VEL, LEX MERCATORIA, OR,
THE ANCIENT LAW-MERCHANT: IN THREE PARTS ACCORDING TO THE ESSENTIALS OF TRAFFICK
(Lawbook Exch. 3rd ed., 2009) (1686); W. MITCHELL, AN ESSAY ON THE EARLY HISTORY
OF THE LAW MERCHANT (Cambridge Univ. 2011) (1904);
LEON E. TRAKMAN, THE LAW
MERCHANT: THE EVOLUTION OF COMMERCIAL LAW 7–22 (1983); Francis M. Burdick,
What is the Law Merchant?, 2 COLUM. L. REV. 470 (1902); Henry
Butterworth, Points in the History of the Law Merchant, 23 LAW MAG. Q.
REV. JURIS. n.s. 1, 2 (1855) (citing Master v. Miller, 4 T.R. 320); A.T. Carter,
Early History of the Law Merchant in England, 232 L.Q. REV. 232 (1901);
Albrecht Cordes, The Search for a Medieval Lex Mercatoria, 5
OXFORD COMP. L.F. 1 (2003) [hereinafter Cordes, Search for a Medieval Lex
Mercatoria]; Keith Highet, The Enigma of the Lex Mercatoria,
63 TUL. L. REV. 613, 616−17 (1989); Friedrich K. Juenger, The Lex
Mercatoria and Private International Law, 60 LA. L. REV. 1133, 1134 (2000);
Philip W. Thayer, Comparative Law and the Law Merchant, 6 BROOK. L. REV.
139 (1936).
For skeptical accounts of the Law Merchant, see J.H. Baker,
The Law Merchant and the Common Law Before 1700, 38 CAMBRIDGE L.J. 295
(1979); John S. Ewart, What Is the Law Merchant?, 3 COLUM. L. REV.
135 (1903); Charles Kerr, The Origin and Development of the Law Merchant,
15 VA. L. REV. 350 (1929); F.C.D. Tudsbery, Law Merchant and the Common
Law, 34 L.Q. REV. 392 (1918); Nicholas H.D. Foster, Foundation Myth as
Legal Formant: The Medieval Law Merchant and the New Lex Mercatoria,
FORUM HISTORIAE IURIS, Mar. 18, 2005,
http://fhi.rg.mpg.de/articles/pdf-files/0503foster.pdf.
On the alleged
growth of a modern “new” Law Merchant, see KLAUS PETER BERGER, THE
CREEPING CODIFICATION OF THE NEW LEX
MERCATORIA (2d ed, 2010); Emmanuel
Gaillard, Thirty Years of Lex Mercatoria: Towards the Selective Application
of Transnational Rules, 10 ICSID REV.-FOREIGN INVESTMENT L.J. 208 (1995);
CLIVE M. SCHMITTHOFF, International Business Law: A New Law Merchant,
in CLIVE M. SCHMITTHOFF’S SELECT ESSAYS ON INTERNATIONAL TRADE LAW 20
(Chia-Jui Cheng ed., 1988) [hereinafter SELECT ESSAYS]; Tamara
Milenković-Kerković, Origin, Development and Main Features of the
New Lex Mercatoria, 1 FACTA UNIVERSITATIS (ECON. & ORG.), no. 5, 1998 at
87; Alec Stone Sweet, The New Lex Mercatoria and Transnational
Governance, 13 J. EUROPEAN PUB. POL’Y 627 (2006).
[3]See, e.g., TRAKMAN,
supra note 2, at 7−8 (discussing the self-regulating Law Merchant);
Harold J. Berman & Colin Kaufman, The
Law of International Commercial Transactions (Lex Mercatoria), 19
HARV. INT’L L.J. 221, 222−23 (1978) (same).
[4]See generally
Cordes, supra note 2, at 1 (addressing Law Merchant justice); Emily
Kadens, Order Within Law, Variety Within Custom: The Character of the
Medieval Merchant Law, 5 CHI. J. INT’L L. 39, 44, 47 (2004) (same);
Leon E. Trakman, From the Medieval Law Merchant to E-Merchant Law, 53 U.
TORONTO L.J. 265, 271 (2003) (same).
[5]It is arguable that political
and economic interests in promoting transregional trade were also significant
drivers behind the conception
of a universal Law Merchant. See, e.g.,
AMALIA D. KESSLER, A REVOLUTION IN COMMERCE: THE PARISIAN MERCHANT COURT AND THE
RISE OF COMMERCIAL SOCIETY IN EIGHTEENTH-CENTURY
FRANCE 73, 86 (2007) (providing
a critique of the procedural virtues associated with the eighteenth-century Law
Merchant based on
the limited and non-archival writings of a merchant, Toubeau).
[6]For an excellent account of the
operation of and deficiencies in the eighteenth-century Law Merchant in
France, see KESSLER, supra note 5 (demonstrating how
merchants associated with the Parisian Court helped to re-conceptualize commerce
and ultimately accounted
for the demise of corporatism culminating in the
revolution of 1789).
[7]See,
e.g., Kerr, supra note 2, at 350, 365−67; Michael T. Medwig,
The New Law Merchant: Legal Rhetoric and Commercial Reality, 24 LAW &
POL’Y INT’L BUS. 589, 593, 611−16 (1993) (contrasting the
legal and commercial attributes of the
Law Merchant); Stephen E. Sachs, From
St. Ives to Cyberspace: The Modern Distortion of the Medieval “Law
Merchant”, 21 AM. U. INT’L L. REV. 685, 692−96 (2006)
(disputing, inter alia, the independence of the medieval Law Merchant at
the Fair of St. Ives from local law and authorities); see also Charles
Donahue, Jr., Medieval and Early Modern Lex Mercatoria: An Attempt at
the Probatio Diabolica, 5 CHI. J. INT’L L. 21, 23 (2004) (discussing
Wyndham Anstis Bewes’s argument in 1923 that mercantile
law was entirely
separate from common law).
It is important to recognize at the outset that
any attempt at a comprehensive analysis of the medieval Law Merchant is
necessarily
tentative. Archival records are sparse, and historical accounts are
incomplete. See KESSLER, supra note 5, at 68, 99, 204 (commenting
on the lack of archived resources on the medieval and post-medieval Law
Merchant, and the subsequent
reliance on secondary sources).
[8]This “romance” of
the Law Merchant was captured, albeit without cynicism, in the title of a widely
cited book extolling
its virtues: WYNDHAM ANSTIS BEWES, THE ROMANCE OF
THE LAW MERCHANT (Sweet & Maxwell 1986) (1923); see also Jacob
Goodyear, The Romance of the Law Merchant, 34 DICK. L. REV. 218, 225
(1930) (giving a romanticized image of the Law Merchant). For challenges to
romantic depictions of the “modern”
Law Merchant, see infra
Part IV.
[9]See generally
DAVID SCHMIDTZ & JASON BRENNAN, A BRIEF HISTORY OF LIBERTY 80–81
(2010) (analyzing the interface between the history of
liberty and the
development of the Law Merchant); Richard A. Epstein, Reflections on the
Historical Origins and Economic Structure of the Law Merchant, 5 CHI. J.
INT’L L. 1, 19–20 (2004) (providing a law and economics perspective
on the Law Merchant).
[10]For a
plural account of the early Law Merchant, see MARY ELIZABETH BASILE ET
AL., LEX MERCATORIA AND LEGAL PLURALISM: A LATE THIRTEENTH CENTURY TREATISE AND
ITS AFTERLIFE (1998). See also infra Parts II.A, V.
[11]On a plural account of
liberalism, see, for example, WILLIAM A. GALSTON, LIBERAL PLURALISM 15–27
(2002). On moral pluralism,
see Ruth Chang, Putting Together Morality
and Well-Being, in PRACTICAL CONFLICTS: NEW PHILOSOPHICAL ESSAYS 118,
119 (Peter Baumann & Monika Betzler eds., 2004); CHARLES E. LARMORE,
PATTERNS
OF MORAL COMPLEXITY 131–50 (1987). On value pluralism and
equality, see MICHAEL WALZER, SPHERES OF JUSTICE: A DEFENSE OF PLURALISM
AND EQUALITY 312 (1984).
[12]See infra Part
III.A.
[13]See infra Part
IV.
[14]See infra Part
IV.
[15]CHRISTIAN
PETSOULAS, HAYEK’S LIBERALISM AND ITS ORIGINS: HIS IDEA OF SPONTANEOUS
ORDER AND THE SCOTTISH ENLIGHTENMENT 12–52
(2001). See generally
FREDERIK HAYEK, THE CONSTITUTION OF LIBERTY (1960).
[16]See, e.g., Norman
Barry, The Tradition of Spontaneous Order, 5 LITERATURE LIBERTY, no. 2,
1982 at 7; Murray N. Rothbard, Concepts of the Role of Intellectuals in
Social Change Toward Laissez Faire, 9 J. LIBERTARIAN STUD., no. 2, 1990.
[17]On the spontaneous ordering
of the Law Merchant, see Bruce L. Benson, The Spontaneous Evolution of
Commercial Law, 55 S. ECON. J. 644, 646–51 (1989) [hereinafter Benson,
Commercial Law]; Bruce L. Benson, The Spontaneous Evolution of Cyber
Law: Norms, Property Rights, Contracting, Dispute Resolution and Enforcement
Without the State, 1 J.L. ECON. & POL’Y 269,
298–328 (2005). On the modern foundations of such
libertarian values, see ANDREW GAMBLES, HAYEK: THE IRON CAGE OF
LIBERTY (1996); LUDWIG VON MISES, PLANNING FOR FREEDOM AND OTHER ESSAYS AND
ADDRESSES (1952);
see also JOHN GRAY, HAYEK ON LIBERTY (3d ed. 1998). On
value preference in utilitarian philosophy, see, for example, John Stuart Mill,
Utilitarianism, in THE BASIC WRITINGS OF JOHN STUART MILL 241
(J.B. Schneewind & Dale. E. Miller eds.,
2002).
[18]See
generally ILLUSION OF CONSENT: ENGAGING WITH CAROLE PATEMAN (Daniel I.
O’Neill et al. eds., 2008) (discussing the foundations of merchant
autonomy in contractual consent); L.E. Trakman, Contracts: Legal
Perspectives, in 3.8 INTERNATIONAL ENCYCLOPEDIA OF THE SOCIAL AND
BEHAVIORAL SCIENCES 2715–19 (2001) (same).
[19]See Leon E. Trakman,
The Law Merchant, 2 HUMANE STUD. REV. 1, 1–3 (1985) (discussing the
spontaneous development of merchant law out of merchant practice).
[20]On the roots of
deontological liberalism in natural law, see WILLIAM A. GALSTON, LIBERAL
PURPOSES: GOODS, VIRTUES AND DIVERSITY IN THE LIBERAL STATE 38, 191−212
(1991); CHRISTOPHER WOLFE,
NATURAL LAW LIBERALISM 185–217 (2006). On the
liberal foundations of modern rights theory, see LEON TRAKMAN & SEAN
GATIEN, RIGHTS AND RESPONSIBILITIES 84–98, 167–86
(1999).
[21]See, e.g.,
Benson, Commercial Law, supra note 17, at 645, 650 (discussing
Law Merchant efficiency). On rational efficiency as “preference
utilitarianism,” see, for example, Mill, supra note 17, at
241. See generally FREDERICK ROSEN, CLASSICAL UTILITARIANISM FROM HUME TO
MILL (2003).
[22]See
generally BASILE, supra note 10, at 181–82 (discussing
regulations imposed on merchants by royal authorities ); KESSLER, supra
note 5, at 18 (discussing regulations imposed on merchant by royal authorities);
id. at 29 (discussing the blurred line between the Parisian Merchant
Court and local guilds).
[23]See KESSLER, supra
note 5, at 111−12, 211−13 (discussing “just price”
as applied to merchants in the eighteenth-century Parisian
Law Merchant);
TRAKMAN, supra note 2, at 8 (as applied to the medieval Law Merchant).
[24]See Lisa
Bernstein, The Questionable Empirical Basis of Article 2’'s
Incorporation Strategy: A Preliminary Study, 66 U. CHI. L. REV. 710,
721–27 (1999) (arguing that merchant custom is in flux and does not evolve
naturally out of merchant practice).
[25]On the influence of law upon
the development of the Uniform Commercial Code (UCC) as a “merchant
code,” see Ingrid Michelsen Hillinger, The Article 2 Merchant
Rules: Karl Llewellyn’s Attempt to Achieve the Good, the True, the
Beautiful in Commercial Law, 73 GEO. L.J. 1141, 1160 (1985); Allen R. Kamp,
Between-the-Wars Social Thought: Karl Llewellyn, Legal Realism, and the
Uniform Commercial Code in Context, 59 ALB. L. REV. 325, 340 (1995) (noting,
for instance, that “Llewellyn’s first drafts of the Code provided
for a jury composed of merchants
to make [factual] determinations”); David
Ray Papke, How the Cheyenne Indians Wrote Article 2 of the Uniform Commercial
Code, 47 BUFF. L. REV. 1457, 1459–60 (1999). But see
Daniel A. Farber, Toward a New Legal Realism, 68 U. CHI. L. REV. 279,
299–300 (2001) (book review) (arguing that the use of experts instead of
ordinary juries “may be a drastic solution
to a minor practical
problem”).
[26]Articles 1
(general) and 2 (sales) of the UCC, of which Karl Llewellyn was the primary
architect, are supposedly grounded in Law Merchant
tenets, especially in a
functional relationship between commercial law and commercial practice. On the
legal realist underpinnings
of this functional relationship, see N.E.H.
HULL, ROSCOE POUND AND KARL LLEWELLYN: SEARCHING FOR AN AMERICAN JURISPRUDENCE
223–77 (1997); WILLIAM TWINING, KARL LLEWELLYN
AND THE REALIST MOVEMENT
(1973); Karl N. Llewellyn, Some Realism About Realism—Responding to
Dean Pound, 44 HARV. L. REV.1222, 1233–38 (1931). On an American Lex
Mercatoria, see GEORGE CAIRNES, AN INQUIRY INTO THE LAW MERCHANT OF THE
UNITED STATES: OR, LEX MERCATORIO AMERICANA (2006).
[27]Some have challenged
efficiency as a pervasive value in monist utilitarianism. See,
e.g., Ronald M. Dworkin, Is Wealth a Value?, 9 J. LEGAL STUD. 191
(1980). For a defense, see, for example, COLIN M. MACLEOD, LIBERALISM,
JUSTICE, AND MARKETS: A CRITIQUE OF LIBERAL EQUALITY 6 (1998) (discussing
fairness
as basic to achieving justice); Richard A. Posner, A Reply to Some
Recent Criticisms of the Efficiency Theory of the Common Law, 9 HOFSTRA L.
REV. 775 (1981).
[28]See, e.g., Paul
G. Mahoney, The Common Law and Economic Growth: Hayek Might Be Right, 30
J. LEGAL STUD. 503 (2001). The spontaneity of the common law presumably arises
in part from the inductive tradition of common law courts reasoning from
case to
case. In contrast, in the civil law tradition, law is deduced from the
interpretation of principles of civil law primarily
contained in civil codes.
See, e.g., Mirjan Damaška, A Continental Lawyer in an
American Law School: Trials and Tribunals of Adjustment, 116 U. PA. L. REV.,
1363, 1373–74 (1968) (discussing the differences between civil and common
law systems of law). A possible inference is that the
common law derives its
spontaneity from judicial activism in reasoning “spontaneously” from
case to case, as distinct
from civil lawyers who reason from first principles
contained in code sections. See Mirjan Damaška, Activism in
Perspective, 92 YALE L.J. 1189, 1195– 96 (1983) (discussing judicial
activism in the common law
system).
[29]Cf. Baker,
supra note 2, at 321 (on the common law’s “fluid
drive”); John Hasnas, Hayek, the Common Law, and Fluid Drive, 1
N.Y.U. J.L. & LIBERTY 79 (2004); Mahoney, supra note 28, at 503
(same). Regarding the inefficiency of the common law, see, for example, RICHARD
POSNER, ECONOMIC ANALYSIS OF LAW
98 (7th ed. 2007) (“The common law method
is to allocate responsibilities between people engaged in interacting activities
in such a way as to maximize the joint value, or, what amounts to the same
thing, minimize the joint cost of the activities.”).
But see George
L. Priest, The Common Law Process and the Selection of Efficient Rules, 6
J. LEGAL STUD. 65, 66, 68–72 (1977); Paul H. Rubin, Why Is the Common
Law Efficient?, 6 J. LEGAL STUD. 51, 61 (1977).
[30]Cf. Barry,
supra note 16 (discussing libertarian idealism in general); see also
Francesco Parisi, Toward a Theory of Spontaneous Law, 6 CONST. POL.
ECON. 211 (1995) (same).
[31]For discussion on the legal
foundations of modern commercial codes, see infra Part IV.D.
[32]On value pluralism in
commercial transactions, including the Law Merchant, see Leon E. Trakman,
Pluralism in Contract Law, 55 BUFF. L. REV. 1031 (2010). Regarding
attempts to assess the commensurability of values, including autonomy values, in
pluralism, see, for example, MICHAEL STOCKER, PLURAL AND CONFLICTING
VALUES 175–78 (1990); BERNARD WILLIAMS, MORAL LUCK: PHILOSOPHICAL
PAPERS
1973–1980, at 71–82 (1981); David Wiggins, Incommensurability:
Four Proposals, in INCOMMENSURABILITY, INCOMPARABILTY AND PRACTICAL
REASON 52, 52–66 (Ruth Chang ed., 1997).
[33]See infra Part
III.B.2 (discussing the malleability of the modern Law Merchant); see also
Gunther Teubner, “Global Bukowina”: Legal Pluralism in the
World Society, in GLOBAL LAW WITHOUT A STATE 3 (Gunther Teubner ed.,
1997) (providing an inspiring plural account of the Law Merchant). On imbedding
the Law Merchant into codes of law, see BERGER, supra note 2;
HERCULES BOOYSEN, INTERNATIONAL TRANSACTIONS AND THE INTERNATIONAL LAW MERCHANT
3–4 (1995).
[34]Cf.
Trakman, supra note 4 (discussing the contrast between autonomy in
the medieval and the modern Law
Merchants).
[35]On the modern
foundation of freedom of contract in consent theory, see F.H. BUCKLEY,
JUST EXCHANGE: A THEORY OF CONTRACT 27 (2005) (discussing consent as an
expression of free will); RUTH R. FADAN &
TOM BEAUCHAMP, A HISTORY AND
THEORY OF INFORMED CONSENT (1986); THE FALL AND RISE OF FREEDOM OF CONTRACT
(F.H. Buckley ed., 1999);
JAMES GORDLEY, THE PHILOSOPHICAL ORIGINS OF MODERN
CONTRACT DOCTRINE 161–213 (1991).
[36]It is arguable that
civil law has not endorsed the concept of liberty to contract as readily as in
common law. See H.K. Lücke, Good Faith and Contractual
Performance, in ESSAYS ON CONTRACT 155, 170 (P.D. Finn ed., 1987)
(noting that “[t]he courageous protection of the liberty of the individual
is not a dominant theme in the civilian tradition” compared to the common
law); see also J.H. BAKER, AN INTRODUCTION TO ENGLISH LEGAL HISTORY
359 (4th ed. 2002) (discussing the role of freedom to contract with
reference to modern standard form contracts); W.J. Wagner, Who May Accept an
Offer: Assignability of Offers, in FORMATION OF CONTRACTS: A STUDY OF
THE COMMON CORE OF LEGAL SYSTEMS 913, 913 (Rudolf B. Schlesinger ed., 1968)
(referencing the notion
of freedom to contract through the concept of offer and
acceptance). On the philosophical roots of modern liberal democracies including
the rights of individuals, see, for example, JOHN DEWEY, RECONSTRUCTION IN
PHILOSOPHY 25–52 (1920); IRWIN EDMAN, JOHN DEWEY:
HIS CONTRIBUTION TO THE
AMERICAN TRADITION 86 (1955). For more on functional responses, see, for
example, WILLIAM JAMES, PRAGMATISM
AND OTHER WRITINGS (Giles Gunn ed., 2000).
[37]See J.H. Gebhardt,
Pacta Sunt Servanda, 10 MOD. L. REV. 159, 160, 170 (1947); Hans
van Houtte, Changed Circumstances and Pacta Sunt Servanda, in
TRANSNATIONAL RULES IN INTERNATIONAL COMMERCIAL ARBITRATION 105 (Emmanuel
Gaillard ed.,
1993).
[38]For more discussion of
good faith in contracting, see infra text accompanying notes
90–91.
[39]The twenty-first
century Law Merchant is canvassed further in Part VI, infra.
[40]These different measures of
merchant autonomy are discussed infra Part V.i.
[41]See infra
text accompanying note 37, 91–92 (discussing the enforcement of
“pacts,” pacta sunt servanda); see also Sachs,
supra note 7, at 717 (addressing participation of merchant suitors in Law
Merchant deliberations).
[42]For more on the
significance of pacts in the growth of transnational arbitration, see infra
Part VI.B.
[43]See
TRAKMAN, supra note 2, at 10–12 (discussing the institutional
regulation of medieval merchant “pacts”). Multilateral, regional,
and bilateral agreements in the twenty-first century are undoubtedly more
complex than the “pacts” between medieval merchants,
the
“treaties” between local principalities, and the
“fealty” foreign merchants showed to local potentates.
But it would
be an overstatement to conclude that “pacts” between medieval
merchants were straightforward while modern
investment and trade agreements are
not. The complexity of agreements also hinges on the discrete sociocultural and
political context,
which is not fixed in time, place, or space. See Parts
V.A–B.
[44]For a more
detailed treatment of party autonomy in the choice of law, see, for
example, JULIAN D.M. LEW, APPLICABLE LAW IN INTERNATIONAL COMMERCIAL ARBITRATION
225 (1978) . I address national and multilateral
restrictions in the
application of choices of law further in Part VI.C
infra.
[45]See infra
Part V (discussing the disparate privileges accorded to twenty-first century
merchants).
[46]For perspectives
on the changing nature of plural legal cultures, see, for example, WERNER
MENSKI, COMPARATIVE LAW IN A GLOBAL CONTEXT:
THE LEGAL SYSTEMS OF ASIA AND
AFRICA 37–58 (2d ed. 2006); David Nelken, Culture, Legal, in
1 ENCYCLOPEDIA OF LAW AND SOCIETY: AMERICAN AND GLOBAL PERSPECTIVES 369,
369–74 (David S. Clark ed., 2007); David Nelken, Using the Concept of
Legal Culture, 29 AUSTRALIAN J. LEG. PHIL. 1, 7 (2004).
[47]See also infra Part
V.
[48]Regarding these diverse
influences on the autonomy of the modern Law Merchant, see infra Part
V. See also FILIP DE LY, INTERNATIONAL BUSINESS LAW AND THE LEX
MERCATORIA 96, 129–30 (1992); Klaus Peter Berger, The New Law Merchant
and the Global Market Place—a 21st Century View of Transnational
Commercial Law, in THE PRACTICE OF TRANSNATIONAL LAW 1 (Klaus Peter
Berger ed., 2001).
[49]See,
e.g., MALYNES, supra note 2, at 6–10. See
generally THE BLACK BOOK OF THE ADMIRALTY (Travers Twiss ed., 1871); THE
LITTLE RED BOOK OF BRISTOL (Francis C. Bickley ed., 1900); P. STUDER,
THE OAK
BOOK OF SOUTHAMPTON (1910); TRAKMAN, supra note 2, at 7–8.
[50]See KESSLER, supra
note 5, at 16–95. As for Law Merchant institutions being absorbed
into, or otherwise influencing the civil and common law systems,
see, for
example, M.F. MORRIS, AN INTRODUCTION TO THE HISTORYOF THE DEVELOPMENT OF
LAW 222, 274 (1909).
[51]See
Amalia D. Kessler, Enforcing Virtue: Social Norms and Self-Interest in an
Eighteenth-Century Merchant Court, 22 LAW & HIST. REV. 71, 89–90
(2004) (discussing the “just price”); see also TRAKMAN,
supra note 2, at 86 (discussing judicial application of fairness
standards). Regarding the determination of the “fair price”
in the
eighteenth-century Parisian Merchant Court, see KESSLER, supra note 5, at
79, 114, 131. On the influence of a broad sense of fairness upon the decisions
of medieval merchant courts, see, for example, TRAKMAN, supra note
2, at 18; Sachs, supra note 7, at 760.
[52]See Sachs, supra
note 7, at 717.
[53]See
infra text accompanying notes 61–62 and Part
III.A.
[54]But see infra
text accompanying notes 69, 86–93.
[55]See, e.g.,
Baker, supra note 2, at 299 (arguing that the Law Merchant was not
autonomous in the early common law
system).
[56]1 WILLIAM
BLACKSTONE, COMMENTARIES *45,
273.
[57]For a challenge to this
“stable” Law Merchant system, see Baker, supra note 2,
at 299 (arguing that, far from being distinct from the common law, common law
courts adopted the Law Merchant on a party establishing
proof of a merchant
usage); Tudsbery, supra note 2, at 393 (discussing the incorporation of
usages into the common
law).
[58]See JAMES
STEVENS ROGERS, THE EARLY HISTORY OF THE LAW OF BILLS AND NOTES 21 (1995);
FREDERIC ROCKWELL SANBORN, ORIGINS OF THE EARLY ENGLISH
MARITIME AND COMMERCIAL
LAW 326–27 (1930).
[59]On an expert system of Law
Merchant justice attuned to merchant practice, see, for example
BLACKSTONE, supra note 56, at *75 (identifying lex mercatoria
as the custom of merchants); id. at *273 (indicating that the law
merchant is internationally recognized and has been accepted as law in England);
W.S. HOLDSWORTH,
A HISTORY OF ENGLISH LAW 528–29 (1924).
[60] On merchant judges
responding to the needs of merchant suitors, see KESSLER, supra
note 5, at 39; TRAKMAN, supra note 2, at 15; Sachs, supra note
7, at 717.
[61]For a fuller
discussion of the Piepoudre courts, including their growth and influence in
English Law following the medieval Law Merchant,
see Charles Gross, The Court
of Piepowder, 20 Q.J. ECON. 231, 231–47
(1906).
[62]See 9 THE NEW
ENCYCLOPæDIA BRITANNICA 431 (15th ed. 2005), available at
http://www.britannica.com/EBchecked/topic/459791/piepoudre-court (providing an
overview of Piepoudre courts).
[63]See Sachs, supra
note 7, at 717 (citing Frederic William Maitland, Introduction to 1
SELECT PLEAS IN MANORIAL AND OTHER SEIGNORIAL COURTS, at xi, lxv (F.W. Maitland,
Seldon Society ed., London, B. Quaritch,
1889)).
[64]See KESSLER,
supra note 5, at 76,
76–78.
[65]I have discussed
ex aequo et bono more fully in prior work. See Leon E. Trakman,
Ex Aequo et Bono: Demystifying an Ancient Concept, CHI. J.
INT’L L. 621 (2008). BLACK’S LAW DICTIONARY 557 (6th ed. 1990)
defines ex aequo et bono as: “in justice and fairness; according to
what is just and good; according to equity and conscience.” It is doubtful
that ex aequo et bono was an equitable doctrine, at least insofar as
equity is deemed to be law.
[66]For an account of the impact
of different interest groups, not limited to merchants, on the Parisian Law
Merchant Court of the eighteenth
century, see KESSLER,
supra note 5, at 35. The concept of community-based decision making is
not peculiar to merchants but is associated with normative notions
of
“good neighborliness” in historical communities that predate the
medieval Law Merchant. See generally ROBERT E. ELLICKSON, ORDER WITHOUT
LAW: HOW NEIGHBORS SETTLE DISPUTES (1991).
[67]See, e.g.,
KESSLER, supra note 5, at 72–73, 235 (discussing alternative
methods of dispute resolution, including mediation, that were used in the
eighteenth-century
Parisian Law Merchant
Court).
[68]See id. at
109, 267 (discussing local authorities’ influence over the
eighteenth-century Law Merchant); Sachs, supra note 7, at 694, 695
(discussing their influence on the delivery of justice at the fairs of St.
Ives).
[69]About attempts to
insulate local law, including maritime law, from the dominance of English Law,
see ROGERS, supra note 58, at 158–59. For local influences
on the Law Merchant more generally, see Paul R. Milgrom et al., The
Role of Institutions in the Revival of Trade: The Law Merchant, Private Judges,
and the Champagne Fairs, in REPUTATION: STUDIES IN THE VOLUNTARY
ELICITATION OF GOOD CONDUCT 243 (Daniel B. Klein ed., 1997). Regarding the
autonomy of merchant
courts from the king in the day-to-day functioning of the
Parisian Court, see KESSLER, supra note 5, at
252.
[70]See TRAKMAN,
supra note 2, at 28 (discussing the “Mansfield jurymen”
trained at Guildhall ); Avner Greif et al., Coordination, Commitment, and
Enforcement: The Case of the Merchant Guild, 102 J. POL. ECON. 744 (1994).
[71]See KESSLER,
supra note 5, at
173.
[72]For a discussion of
historical evidence that merchant courts were subject to the influence of
medieval rulers at the Fair of St. Ives
see, for example, Sachs, supra
note 7, at 696–98. As for the directives of the reigning King at the
Parisian Merchant Court in the eighteenth century see,
for example, KESSLER,
supra note 5, at 21 (discussing the influence of the King’s Council
over, inter alia, the validity of privileges granted to merchants).
[73]See KESSLER,
supra note 5, at 247(discussing the sale of offices and tax exemptions);
ROGERS, supra note 58, at 156–58 (discussing the payment of taxes);
Sachs, supra note 7, 749 n.223 (discussing the payment of rents).
[74]It is arguable that the
evolution of merchant practice into merchant law was guided by a sense of
practical reason, not unlike the
“practical reason” by which common
law courts make normative choices among plural values. See JOSEPH RAZ,
ENGAGING REASON: ON THE THEORY OF VALUE AND ACTION 46–66 (1999)
(discussing “practical reason” in legal
philosophy).
[75]See supra
note 65.
[76]This assumption
is problematic insofar as the Law Merchant was framed against the background of
pre-existing law such as Roman and
canon law. See, e.g., infra
text accompanying notes 88–89; see also Kadens, supra
note 4, at 39.
[77]The principle of ex aequo
et bono was inculcated into the early common law. See Moses v.
Macferlan, [1760] EngR 713; (1760) 97 Eng. Rep. 676 (K.B.) 681[1760] EngR 713; , 2 Burr. 1005, 1012 (Mansfield,
J.) (stating that an action in restitution lies “for money which, ex
æquo [e]t bono, the defendant
ought to refund.”); Lickbarrow v.
Mason, [1793] EngR 1503; (1787) 100 Eng. Rep. 35 (K.B.), 41, 2 Term Rep. 63, 73 (Buller, J.).
But see Clerke v. Martin, [1790] EngR 362; (1702) 92 Eng. Rep. 6 (K.B.), 2 Ld. Raym. 757
(Lord Holt, C.J.). See generally Baker, supra note 2 (discussing
the relationship between the Law Merchant and the common
law).
[78]See
BüRGERLICHES GESETZBUCH [BGB] [CIVIL CODE], 2, 1896 § 242 (Ger.);
CODICE CIVILE [C.C.] art. 1375 (It.); PRINCIPLES OF EUROPEAN
CONTRACT LAW art.
1:102 (Comm’n on Eur. Contract Law 1999); Annick De Boeck & Mark Van
Hoecke, The Interpretation of Standard Clauses in European Contract Law,
in STANDARD CONTRACT TERMS IN EUROPE 201, 237–39 (Hugh Collins ed.,
2008).
[79]See, e.g.,
Harold J. Berman & Colin Kaufman, The Law of International Commercial
Transactions (Lex Mercatoria), 19 HARV. INT’L L.J. 221 (1978)
(providing examples of informal merchant practices in formal law);
Trakman, supra note 4, at 274 (same).
[80]See, e.g.,
SUPREME COURT OF JUDICATURE ACT, 1873, 36 & 37 Vict. 8, c. 66
(Eng.) (fusing the law of equity and the common law); see also FREDERICK
POLLOCK, PRINCIPLES OF CONTRACT AT LAW AND IN EQUITY 1–31 (London, Stevens
& Sons 1876); CHARLES VINER, 4 A GENERAL
ABRIDGEMENT OF LAW AND EQUITY
(1792) (detailing the historical abridgment of equitable and common law
principles); Trakman, supra note
65.
[81]See supra Part
II.A.
[82]While the concept of
value pluralism was unknown in medieval times, it can nevertheless help to imbue
seemingly incommensurable royal,
community, religious, merchant, and other
plural values. See, e.g., GEORGE CROWDER, LIBERALISM AND VALUE PLURALISM
49–54 (discussing incommensurability in value pluralism generally); HORACE
M. KALLEEN, CULTURAL PLURALISM AND THE AMERICAN IDEA: AN ESSAY IN SOCIAL
PHILOSOPHY 19–28 (1958) (discussing cultural pluralism);
Trakman,
supra note 32, at 1089–92
(same).
[83]See supra Part
III.B.1 (discussing the incongruent attributes of the Law
Merchant).
[84]See Nikitas
E. Hatzimihail, The Many Lives—and Faces—of Lex Mecatoria:
History as Genealogy in International Business Law, 71 LAW & CONTEMP.
PROBS. 169 (2009); see also supra Part III.A.
[85]This notion of a fragmentary
Law Merchant is evident in historical studies of the common law. See,
e.g., Baker, supra note 2, at 300. But see ROGERS,
supra note 58, at 20–27; Ewart, supra note 2, at 135,
138; supra text accompanying notes 16–17.
[86]For a plural account of how
business practice informs the common law of contracts, see Trakman,
supra note 32.
[87]See,
e.g., HOLDSWORTH, supra note 59. The Law Merchant is also
depicted as part of a medieval ius commune. See Baker, supra
note 2, at 299 (citing The Carrier’s Case, Y.B. 13 Edw. 4,
fol. 9, Pasch, pl. 5 (1473) (Eng.), reprinted in 64 SELDEN SOCIETY 30, 32
(1945) (“A universal law throughout the world.”); James Gordley,
Good Faith in Contract Law in the Medieval Ius Commune, in GOOD
FAITH IN EUROPEAN CONTRACT LAW 93, 95–103 (Reinhard Zimmermann & Simon
Whittaker eds., 2000).
[88]See, e.g.,
MORRIS, supra note 50, at
222.
[89]Even such standards of
good faith imputed to merchant practice did not originate in the Law Merchant,
but were first developed in
both Roman and canon law. See W.W. BUCKLAND
& ARNOLD D. MCNAIR, ROMAN LAW AND COMMON LAW: A COMPARISON IN OUTLINE
193–96 (F.H. Lawson ed., 2nd ed. 1952);
THOMAS EDWARD SCRUTTON, THE
INFLUENCE OF THE ROMAN LAW ON THE LAW OF ENGLAND (London, C.J. Clay & Son
1885); Martin Josef Schermaier,
Bona Fides in Roman Contract Law,
in GOOD FAITH IN EUROPEAN CONTRACT LAW, supra note 87, at 63, 65;
C.C. Turpin, Bonae Fidei Iudicia, 1965 CAMBRIDGE L.J. 260; see
also PETER STEIN, ROMAN LAW IN EUROPEAN HISTORY 73 (1999) (discussing the
use of canon law as a source of rules); id. at 10 (discussing ex fide
bona in Roman law); TRAKMAN, supra note 2, at 25, 137–38
(listing further resources on the concept of good faith); Milgrom et al.,
supra note 69, at 251–53 (discussing the notion of good faith by
means of a statistical
analysis).
[90]See supra
text accompanying note
65.
[91]On the binding force of
merchant “pacts,” in the conception of “pacta sunt
servanda,” see, for example, TRAKMAN,
supra note 2, at 63. But
see id. at 17 (arguing that the “merchants of Medieval Europe . . .
were unable to develop their relationships purely on the basis
of joint
reliance, trust and cooperation”).
[92]See supra text
accompanying notes 38 and 90 (discussing merchants’ duty to perform their
“pacts” in “good faith”).
[93]See infra Part IV
(discussing further such preferential treatment of different merchant
classes).
[94]See, e.g.,
Statute of the Staple, 1353, 27 Edw. 3, c. 20 (Eng.).
[95]These observations were also
reflected in commentary on the Law Merchant of seventeenth- and
eighteenth-century England. See, e.g., L. Stuart Sutherland,
The Law Merchant in England in the Seventeenth and Eighteenth
Centuries, 17 TRANSACTIONS ROYAL HIST. SOC’Y 149
(1934).
[96]For example, members
of merchant guilds were ordinarily required to undertake a guild apprenticeship.
See, e.g., KESSLER, supra note 5, at 22. For a simple but
insightful website devoted to medieval merchant guilds, built by Stephen
Alsford, see MERCHANT GUILDS IN THE MIDDLE AGES,
http://www.middle-ages.org.uk/merchant-guilds-in-the-middle-ages.htm (last
visited July 25, 2011).
[97]Guild leaders were often
wealthy, influential, and skilled in drafting guild regulations and
participating in guild litigation, including
as merchant judges. On the reliance
on guild leaders to help resolve disputes involving merchants in the
eighteenth-century Parisian
Law Merchant Court, see KESSLER, supra
note 5, at 79. On the significance of guild regulations in establishing, among
other requirements, the “just price,” see id. at 112.
See generally Oscar Gelderblom & Regina Grafe, The Rise,
Persistence and Decline of Merchant Guilds, 40 J. INTERDISC. HIST. 477,
477–81 (2010), available at
http://www.econ.yale.edu/seminars/echist/eh09/grafe-090413.pdf.
[98]See Walton H.
Hamilton, The Ancient Maxim Caveat Emptor, 40 YALE L.J. 1133,
1158–63 & n. 168 (1931) (addressing the unclear historical nature and
boundaries of the maxim of caveat
emptor).
[99]Illustrating
the interrelationship between merchant practice and law was the tendency of
judges on the eighteenth-century Parisian
Law Merchant Court to reach decisions
based on merchant practice while acknowledging the background influence of the
“official”
law. See, e.g., KESSLER, supra note
5, at 102–03 (discussing the influence of eighteenth-century merchant
practices in reconceptualizing commerce and undermining
the corporatist logic of
the French order of the day).
[100]See,
e.g., TRAKMAN, supra note 2, at 7–22.
[101]See infra Part IV
(discussing the continuum from a liberalized, to a regulated, and finally to a
uniform Law
Merchant).
[102]See
generally REINHARD ZIMMERMANN, THE LAW OF OBLIGATIONS: ROMAN FOUNDATIONS OF
THE CIVILIAN TRADITION
(1992).
[103]See
FREDERICK POLLOCK & FREDERIC WILLIAM MAITLAND, THE HISTORY OF ENGLISH
LAW BEFORE THE TIME OF EDWARD 1 (2d ed. 1968); SANBORN,
supra note 58, at
262–401 (early English maritime and commercial law); Baker, supra
note 2, at 296. Regarding the spontaneous ordering imputed to the common
law, see supra note
28.
[104]For the adoption of
the Lex Mercatoria by American courts under the UCC, see, for example,
Alaska Textile Co., Inc. v. Chase Manhattan Bank, N.A. [1992] USCA2 1177; 982 F.2d 813 (2d Cir.
1992); Pribus v. Bush, 173 Cal. Rptr. 747 (Cal. Ct. App. 1981); Mirabile v.
Udoh, 399 N.Y.S.2d 869 (N.Y. Cit. Ct. 1977). For a classic American decision
favoring the Lex Mercatoria, see Bank of Conway v. Stary, 200 N.W. 505 (N.D.
1924); supra notes 24–25 (discussing the connection between
merchant laws and the approval of such laws by legal
authorities).
[105]See infra
Part IV.C.
[106]See
infra Part VI. See generally Andreas F. Lowenfeld, Lex Mercatoria:
An Arbitrator’s View, 6 ARB. INT’L 133 (1990).
[107]See discussion
infra Part V.
[108]See
generally A. CLAIRE CUTLER, PRIVATE POWER AND GLOBAL AUTHORITY:
TRANSNATIONAL MERCHANT LAW IN THE GLOBAL POLITICAL ECONOMY 16–17 (2003);
Harold J. Berman & Felix J. Dasser, The “New” Law Merchant
and the “Old”: Sources, Content, and Legitimacy, in LEX
MERCATORIA AND ARBITRATION: A DISCUSSION OF THE NEW LAW MERCHANT 53 (Thomas E.
Carbonneau ed., rev. ed. 1998).
[109]See Symeon C.
Symeonides, Party Autonomy and Private-Law Making in Private International
Law: The Lex Mercatoria that Isn’t, FESTSCHRIFT FüR
KERAMEUS (Nov. 19, 2006), available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=946007. See generally
LARRY A. DIMATTEO, LAW OF INTERNATIONAL CONTRACTING 1–10 (2d ed.
2009).
[110]See, e.g.,
Vera van Houtte, Consent to Arbitration Through Agreement to Printed
Contracts: The Continental Experience, 16 ARB. INT’L 1, 1–2
(2000) (treating the operation of jurisdiction clauses). But see HORACIO
A. GRIGERA NAóN, CHOICE-OF-LAW PROBLEMS IN INTERNATIONAL COMMERCIAL
ARBITRATION 60–75, 74 (1992) (arguing that
arbitrators “exercise
checks and controls” on parties’ choice of law).
[111]See infra Part
VI.A–B.
[112]See
generally W. LAURENCE CRAIG ET AL., INTERNATIONAL CHAMBER OF COMMERCE
ARBITRATION (3d ed. 2000) (discussing the institutionalization of arbitral
choices by transnational parties); INTERNATIONAL CHAMBER OF COMMERCE, ICC
DISPUTE RESOLUTION SERVICES, http://www.iccwbo.org/court/ (last visited
July 25, 2011).
[113]See
infra Part V.A (discussing arguments favoring the free flow of goods and
services across national
boundaries).
[114]See
Leon E. Trakman, Foreign Direct Investment: Hazard or Opportunity?,
41GEO. WASH. INT’L L. REV. 1, 45–46 (2010) (discussing the autonomy
of foreign investors under multilateral, regional,
and bilateral treaties). On
the fair and equitable treatment of such investors, see generally Barnali
Choudhury, Evolution or Devolution?: Defining Fair and Equitable Treatment in
International Investment Law, 6 J. WORLD INVESTMENT & TRADE 297 (2005);
Patrick Dumberry, The Quest to Define “Fair and Equitable
Treatment” for Investors Under International Law: The Case of the NAFTA
Chapter
11 Pope & Talbot Awards, 3 J. WORLD INVESTMENT &
TRADE 657 (2002) (analyzing awards under the “minimum standard of
treatment” clause of NAFTA
Chapter 11); Courtney C. Kirkman, Fair and
Equitable Treatment: Methanex v. United States and the Narrowing Scope of
NAFTA Article 1105, 34 LAW & POL’Y INT’L BUS. 343 (2002);
Christoph Schreuer, Fair and Equitable Treatment in Arbitral Practice, 6
J. WORLD INVESTMENT & TRADE 357 (2005), available at
http://www.univie.ac.at/intlaw/wordpress/pdf/77.pdf; Stephen Vasciannie, The
Fair and Equitable Treatment Standard in International Investment Law and
Practice, 70 BRIT. Y.B. INT’L L. 99 (1999); OECD, Fair and
Equitable Treatment Standard in International Investment Law (OECD, Working
Paper No. 2004/3, 2004), available at
http://www.oecd.org/dataoecd/22/53/33776498.pdf; Stephan W. Schill, Fair and
Equitable Treatment Under Investment Treaties as an Embodiment of the Rule of
Law (Inst. for Int’l L. & Justice, Working Paper No. 2006/6,
2006), available at
http://www.iilj.org/publications/documents/2006-6-GAL-Schill-web.pdf .
[115]Charles H. Brower
II, NAFTA’s Investment Chapter: Initial Thoughts About
Second-Generation Rights, 36 VAND. J. TRANSNAT’L L. 1533,
1556–58, 1565 (2003) (arguing that increasing domestic concerns for
economic and social
rights have begun to outweigh the historical preference
accorded to investors’ liberty, indicating that investors’ rights
are not inherent in their position but, in fact, granted and regulated by both
the state and contemporary social trends); David Schneiderman,
Constitutionalizing Economic Globalization: Investment Rules and
Democracy’s Promise, 69 CAMBRIDGE L.J. 231, 231 (2009); see
also infra Part IV.B.
[116]The United Nations
Conference on Trade and Development (UNCTAD) keeps a compilation of
international investment agreements. U. N.
CONFERENCE ON TRADE AND DEVELOPMENT,
International Investment Agreements,
http://www.unctad.org/Templates/StartPage.asp?intItemID=2310&lang=1
(last visited July 25, 2011); see also Official Records of the General
Assembly, Thirty-First Session, Supplement No. 17 (A/31/17),
chap.V, sect. C. U.N. Comm’n on Int’l Trade Law Arbitration
Rules, (1976) [hereinafter UNCITRAL Rules].
[117]See Trakman,
supra note 114, at 36–41(discussing procedural and substantive
limits on state power in relation to foreign investors).
[118]On the grant of such
privileges, see infra Part
V.B.
[119]See, e.g.,
TRAKMAN, supra note 2, at 28 (addressing the licensing of merchant
guilds).
[120]For classical
commentary on contracts of adhesion in the twentieth century, see Friederich
Kessler, Contracts of Adhesion: Some Thoughts About Freedom of Contract,
43 COLUM. L. REV. 629 (1943); Arthur Allen Leff, Contract as Thing, 19
AM. U. L. REV. 131 (1970); Todd D. Rakoff, Contracts of Adhesion: An Essay in
Reconstruction, 96 HARV. L. REV. 1173, 1179–80 (1983) (noting that the
adhering party will rarely have read the terms of the contract). See also
infra Part V.A (discussing forum shopping among other “tactics”
that merchants use in their international business
dealings).
[121]See infra
Part III.C (discussing this tension, particularly between the centralization
and decentralization of the Law Merchant along national
and local lines); see
also Robert D. Cooter, Structural Adjudication and the New Law Merchant:
A Model of Decentralized Law, 14 INT’L REV. L. & ECON. 215, 217
(1994); Francesco Galgano, The New Lex Mercatoria, 2 ANN. SURV.
INT’L & COMP. L. 99, 102–09 (1995) (discussing the use of
uniform contractual models to navigate the
tension between national and
international laws); Leon E. Trakman, The Evolution of the Law Merchant: Our
Commercial Heritage, Part II, 12 J. MAR. L. & COM. 153, 169–71
(1981).
[122]See infra
Part III.B (discussing public constraints imposed on private merchant
practices).
[123]See infra
Part V.B (laying out considerations for evaluating the multistate regulation
of foreign investor practices).
[124]See generally LY,
supra note 48; Berger, supra note 48 (addressing the efficient
regulation of international business under the modern Law Merchant).
[125]See infra Part
IV.D (discussing this balance between state sovereignty in regulating foreign
investors and the delegation of this authority
to multilateral
authorities).
[126]On the
development of negotiable instruments in the eighteenth-century Law Merchant,
see, for example, KESSLER, supra note 5. On the absorption of
negotiable instruments into the common law system, see Bank of Conway v. Stary,
200 N.W. 505 (N.D. 1924). See also ARTHUR REGINALD BUTTERWORTH,
BANKERS’ ADVANCES ON MERCANTILE SECURITIES 96 (1902) (discussing the
Factors Act of 1889); JOHN
J. CRAWFORD, THE NEGOTIABLE INSTRUMENTS LAW (4th ed.
1916) (laying out a model uniform law of negotiable instruments); HERBERT ALAN
JOHNSON, THE LAW MERCHANT AND NEGOTIABLE INSTRUMENTS IN COLONIAL NEW YORK 1664
TO 1730 (1963); ROGERS, supra note 58, at 153–60; P. WILFRID
THORNELY, THE HISTORY OF THE LAW MERCHANT AND NEGOTIABILITY (1904) (discussing
the development
of the Law Merchant in the context of negotiable instruments
law); Rufus James Trimble, The Law Merchant and the Letter of Credit, 61
HARV. L. REV. 981, 1001–02 (1948); Abbott Payson Usher, The Origins of
Banking: The Primitive Bank of Deposit, 1200–1600, 4 ECON.
HIST. REV. 399, 409, 425–28 (1934); Herman van der Wee, Monetary,
Credit and Banking Systems, in 5 THE CAMBRIDGE ECONOMIC HISTORY OF
EUROPE: THE ECONOMIC ORGANIZATION OF EARLY MODERN EUROPE 290 (E.E. Rich &
C.H. Wilson eds.,
1977) (discussing the development of payments systems
generally).
[127]For more on this narrow
plea of necessity, which states are entitled to assert as a basis for a
“taking” under customary
international law, see Jürgen Kurtz,
Adjudicating the Exceptional at International Investment Law: Security,
Public Order and Financial Crisis, 59 INT’L & COMP. L.Q. 325,
330–39 (2010).
[128]See M. Sornarajah,
The Norman Paterson School of International Affairs Simon Reisman Lecture in
International Trade Policy: The Clash
of Globalizations and the International
Law on Foreign Investment (Sept. 12, 2002), as reprinted in 10 CANADIAN
FOREIGN POL’Y 1 (2003), available at
http://www.ctpl.ca/publications/speeches-presentations/clash-globalizations-and-international-law-foreign-investment
(discussing limitations
associated with the requirements that governments,
particularly developing ones, pay full compensation for expropriating foreign
investments); see also Charter of Economic Rights and Duties of States,
G.A. Res. 3281 (XXIX), 29, U.N. Doc. A/RES/3281 (Dec. 12, 1974),
reprinted in 14 I.L.M. 251 (1975).
[129]See supra text
accompanying notes 35–37 (discussing the social contract and democratic
theory); see also RANDY E. BARNETT, RESTORING THE LOST CONSTITUTION: THE
PRESUMPTION OF LIBERTY 100–09 (2004) (arguing that the Constitution acts
as a form of contract); Joseph Kary, Contract Law and the Social Contract:
What Legal History Can Teach Us About the Political Theory of Hobbes and
Locke, 31 OTTAWA L. REV. 73 (2000).
[130]The second compact, in
effect, is an extension of the first. Just as nation-states concede sovereignty
by a social compact with their
citizenry, they concede their residual
sovereignty to the multistate community. The problem is when concessions by
states of their
sovereignty to their citizens and other states conflict. See
infra Part
IV.C–D.
[131]It is
arguable that nation-states nationalize the Law Merchant uniformly in the first
instance, such as by incorporating international
sales conventions into their
domestic legal systems. It is far less arguable that, over time, domestic
institutions such as judicial
bodies are likely to perpetuate that uniformity.
See infra Part IV.D.
[132]See, e.g.,
Kurtz, supra note 127, at 330–34 (discussing public order
considerations in investment arbitration); LOTFI CHEDLY, ARBITRAGE COMMERCIAL
INTERNATIONAL & ORDRE PUBLIC TRANSNATIONAL (2002); Santiago Gonzalez-Luna,
Constitutional Challenges to NAFTA Chapter 11: A Mexican Perspective,
in THE FIRST DECADE OF NAFTA: THE FUTURE OF FREE TRADE IN NORTH AMERICA
279, 289 (Kevin C. Kennedy ed., 2005); see also Bernardo M. Cremades,
Disputes Arising Out of Foreign Direct Investment in Latin America: A New
Look at the Calvo Doctrine and Other Jurisdictional Issues, 59 DISP. RESOL.
J. 78 (2004) (discussing the Calvo Doctrine, which requires foreign investors to
submit investor-state disputes to domestic
courts).
[133]See ERIN
A. O’HARA & LARRY E. RIBSTEIN, THE LAW MARKET 37–64 (2009)
(describing how state choice-of-law rules regulate
the market and attract
business into that market).
[134]See infra note 146
(discussing this delegation of sovereignty by states in preference for
international trade and
investment).
[135]In customary
international law, “necessity” is one basis for a state’s
“taking” of a foreign investment.
See, e.g.,
Kurtz, supra note
127.
[136]Scholars have noted
this interaction between national and transnational regulation of foreign
investment. See, e.g., M. SORNARAJAH, THE INTERNATIONAL LAW ON
FOREIGN INVESTMENT 50–82 (3rd ed.
2010).
[137]This conflict
between the exercise of sovereignty by states over foreign investment and their
delegation of that sovereignty through
bilateral, regional, and multilateral
agreement is implicit in implementing and applying treaties to specific cases.
See, e.g., GARY B. BORN, INTERNATIONAL ARBITRATION AND FORUM
SELECTION CLAUSES; DRAFTING AND ENFORCING 144 (2010); ANTOINE KASSIS, THEORIE
GENERALE
DES USAGES DU COMMERCE: DROIT COMPARE, CONTRATS ET ARBITRAGE
INTERNATIONAUX, LEX MERCATORIA 501 (1984) (addressing the application
of the
forum non conveniens rule to merchant
disputes).
[138]See
generally CUTLER, supra note 108, at 144–61; TRAKMAN,
supra note 2, at 23–44 (discussing nationalization of the Law
Merchant in the sixteenth
century).
[139]Most
prominent among these domesticated codes of merchant law and surviving in part
is the French Commercial Code. See CODE DE COMMERCE [C. COM.] (Fr.),
available at
http://www.lexinter.net/ENGLISH/commercial_code.htm.
[140]See
SORNARAJAH, supra note 136, at 145–86 (discussing a challenge
to the conception of “international” investment and the assertion of
state authority over foreign investments); see also infra Part
V.B.
[141]Two of the leaders of
this uniform law movement were John Honnold and Clive Schmitthoff. See
JOHN O. HONNOLD, UNIFORM LAW FOR INTERNATIONAL SALES UNDER THE 1980 UNITED
NATIONS CONVENTION (Harry M. Flechtner ed., 4th ed. 2009);
John Honnold, The
Sales Convention: From Idea to Practice, 17 J.L. & COM. 181 (1998);
SCHMITTHOFF, supra note 2,; CLIVE M. SCHMITTHOFF, The Unification of
the Law of International Trade, in SELECT ESSAYS, supra note
2, at 170; see also Bernardo M. Cremades & Steven L. Plehn, The
New Lex Merxatoria and the Harmonization of the Laws of International Commercial
Transactions, 2 B.U. INT’L L.J. 317 (1984).
[142] United Nations
Convention on Contracts for the International Sale of Goods, Apr. 11, 1980, S.
Treaty Doc. No. 98-9 (1983), 1489 U.N.T.S. 3. The full text of the CISG is
available at
http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG.html.
[143]See JAN PAULSSON
& GEORGIOS PETROCHILOS, REVISION OF THE UNCITRAL ARBITRATION RULES,
available at http://www.uncitral.org/pdf/english/news/arbrules_report.pdf
(last visited July 25, 2011), UNCITRAL Arbitration Rules of 1976, 15 I.L.M. 701
(1976); UNCITRAL, Report of the Working Group
on Arbitration and Conciliation on the Work of Its Forty-Fifth
Session,
6, U.N. Doc. A/CN.9/614 (Oct. 5, 2006); Gerold Herrmann, The UNCITRAL
Arbitration Law: A Good Model of a Model Law, 3 UNIFORM L. REV. 483
(1998).
[144]See Statements,
Codes, and Rules, INTERNATIONAL CHAMBER OF COMMERCE,
http://www.iccwbo.org/display7/doctype6/index.html (last visited July 25, 2011);
Rules and Clauses for ICC Dispute Resolution Services,
INTERNATIONAL CHAMBER OF COMMERCE,
http://www.iccwbo.org/court/arbitration/id4424/index.html (last visited July 25,
2011).
[145]On the
identification of twenty-first century multilateral commercial agreements with
an evolving Law Merchant, see C.M. BIANCA & M.J. BONELL, COMMENTARY
ON THE INTERNATIONAL SALES LAW: THE 1980 VIENNA SALES CONVENTION 65–94
(1987); HONNOLD,
supra note 141, at 70–71; Gyula Eörsi,
Problems of Unifying Law on the Formation of Contracts for the International
Sale of Goods, 27 AM. J. COMP. L. 311 (1979); Clayton Gillette, The Law
Merchant in the Modern Age: Institutional Design and International Usages Under
the CISG, 5 CHI. J. INT’L L. 157 (2004); Joseph Lookofsky, Online
with Al K, in SHARING INTERNATIONAL COMMERCIAL LAW ACROSS NATIONAL
BOUNDARIES: FESTSCHRIFT FOR ALBERT H. KRITZER ON THE OCCASION OF HIS EIGHTIETH
BIRTHDAY 287 (Camilla B. Anderson & Ulrich G. Schroeter eds., 2008); Filip
de Ly, Sources of International Sales Law: An Eclectic Model, 25
J.L. & COM. 1, 4
(2006).
[146]For discussion of
the stress placed on harmonization by unifying laws, see Berman & Kaufman,
supra note 3, at 221; Thomas E. Carbonneau & Marc S. Firestone,
Transnational Law-Making: Assessing the Impact of the Vienna Convention and
the Viability of Arbitral Adjudication, 1 EMORY J. INT’L DISP. RESOL.
51, 70, 79 (1986); Cremades & Plehn, supra note 141; Aleksandar
Goldštajn, Usages of Trade and Other Autonomous Rules of International
Trade According to the UN (1980) Sales Convention, in INTERNATIONAL
SALE OF GOODS: DUBROVNIK LECTURES 55 (Peter Šarčević & Paul
Volken eds., 1986).
[147]See Clive M.
Schmitthoff, International Business Law, A New Law Merchant, 2 CURRENT L.
& SOC. PROBS. 129 (1961) (describing the perceived virtues of harmonized
laws in the late nineteenth century uniform
law movement, with less reflection
on its pitfalls). But see Jonathan L. Greenblatt & Peter R. Griffin,
Towards the Harmonization of International Arbitration Rules: Comparative
Analysis of the Rules of the ICC, AAA, LCIA and CIET, 17 ARB. INT’L
101, 101, 109 (2001) (explaining that, while major arbitral institutions have
steadily tried to harmonize arbitration
rules and to dissociate themselves from
national systems of law, key differences still remain that are likely to
influence parties’
choices of institution); Eric Posner, Arbitration
and the Harmonization of International Commercial Law: A Defense of
Mitsubishi, 39 VA. J. INT’L L. 647 (1999) (arguing that Mitsubishi
Motors Corp. v. Soler Chrysler-Plymouth, Inc., [1985] USSC 203; 473 U.S. 614 (1985) harmonizes
the needs of domestic public policy and the need for an international commercial
law).
[148]Arguably, such
harmonization of laws is easier to accomplish among national law systems within
the same immediate family, such as
European civil law systems, than different
legal systems, such as the common law, and harder still, to reconcile with
customary legal
systems. See supra note 147 (discussing the case for
international harmonization). On the harmonization of law movement in Europe,
see, for example,
THE HARMONISATION OF EUROPEAN CONTRACT LAW (Stefan Vogenauer
& Stephen Weatherill eds., 2006); Klaus Peter Berger, Harmonisation of
European Contract Law: The Influence of Comparative Law, 50 INT’L
& COMP. L.Q. 877 (2001); Hugh Collins, Good Faith in European Contract
Law, 14 OXFORD J. LEGAL STUD. 229 (1994).
[149]The WTO Agreement is relatively short. It consists of sixteen articles containing the WTO’s institutional framework. The annexes of the WTO Agreement contain all the specific multilateral agreements. See generally YANG GUOHUA ET AL., WTO DISPUTE SETTLEMENT UNDERSTANDING: A DETAILED INTERPRETATION (2005); DAVID PALMETER ET AL., DISPUTE SETTLEMENT IN THE WORLD TRADE ORGANIZATION: PRACTICE AND PROCEDURE (2d ed. 2004); Jürgen Kurtz, The Use and Abuse of WTO Law in Investor-State Arbitration: Competition and Its Discontents, 20 EUR. J. INT’L L. 749 (2009). A comprehensive list of publications on global commerce and the WTO can be found both in print and online. See WTO SECRETARIAT, A HANDBOOK ON THE WTO DISPUTE SETTLEMENT SYSTEM (2004); WTO SECRETARIAT, THE WTO DISPUTE SETTLEMENT SYSTEM: A COLLECTION OF THE RELEVANT LEGAL TEXTS (2d ed. 2001); WTO, JOHN F. HENNING CENTER FOR INTERNATIONAL LABOR RELATIONS,
http://henningcenter.berkeley.edu/gateway/wto.html (last visited July 25, 2011).
[150]See Stephen
Woolcock, The Role of Regional Agreements in Trade and Investment
Regimes, in REGIONALISATION AND GLOBAL GOVERNANCE: THE TAMING OF
GLOBALISATION? 118, 159 (Andrew F. Cooper et al. eds., 2008) (discussing
regional
investment agreements); see also TRANSATLANTIC ECONOMIC
DISPUTES: THE EU, THE US AND THE WTO (Ernst-Ulrich Petersmann & Mark A.
Pollack eds.,
2003).
[151]See infra
note 193.
[152]See Ryan J. Bubb
& Susan Rose-Ackerman, BITs and Bargains: Strategic Aspects of Bilateral
and Multilateral Regulation of Foreign Investment, 27 INT’L
REV. L. & ECON. 291, 296 (2007); Kenneth J. Vandevelde, A Brief History
of International Investment Agreements, 12 U.C. DAVIS J. INT’L L.
& POL’Y 157, 168–70 (2005); see also infra note
188.
[153]See, e.g.,
Tim Büthe & Helen V. Milner, The Politics of Foreign Direct
Investment into Developing Countries: Increasing FDI Through International Trade
Agreements?, 52 AM. J. POL. SCI. 741 (2008) (discussing the perceived impact
of bilateral investment agreements on developing states); Susan
D. Franck,
The Nature and Enforcement of Investor Rights Under Investment Treaties: Do
Investment Treaties Have a Bright Future, 12 U.C. DAVIS J. INT’L L.
& POL’Y 47 (2005); Andrew T. Guzman, Why LDCs Sign Treaties That
Hurt Them: Explaining the Popularity of Bilateral Investment Treaties, 38
VA. J. INT’L L. 639 (1998); see also supra Part IV.C; cf.
Kevin C. Kennedy, A WTO Agreement on Investment: A Solution in Search of
a Problem?, 24 U. PA. J. INT’L ECON. L. 77, 152–55 (2003)
(discussing sovereignty concerns of developing countries in the context
of a
proposed WTO agreement on
investment).
[154]For a
critique of the unification of laws as futile, see, for example, Paul B.
Stephan, The Futility of Unification and Harmonization in International
Commercial Law, 39 VA. J. INT’L L.743, 788 (1999); see also
SHERZOD SHADIKHODJAEV, RETALIATION IN THE WTO DISPUTE SETTLEMENT SYSTEM
8–11 (2009); ANDREW D. MITCHELL, LEGAL PRINCIPLES IN
WTO DISPUTES
67–104 (2008); Frieder Roessler, Special and Differential Treatment of
Developing Countries Under the WTO Settlement System, in THE WTO
DISPUTE SETTLEMENT SYSTEM 1995–2003, at 87 (Federico Ortino &
Ernst-Ulrich Petersmann eds., 2004) (arguing that
developing countries have
difficulty utilizing the WTO dispute settlement system); ISABELLE VAN DAMME,
TREATY INTERPRETATION BY THE
WTO APPELLATE BODY 8–21 (2009) (discussing
WTO dispute-settlement jurisdiction and what substantive law applies in such
proceedings);
WTO, INSTITUTIONS AND DISPUTE SETTLEMENT (Rüdiger Wolfrum et
al. eds., 2006) (providing commentary on WTO
laws).
[155]Even some who
strongly support the harmonization of international commercial law acknowledge
this challenge. See E. Allan Farnsworth, Modernization and
Harmonization of Contract Law: An American Perspective, 8 UNIFORM L. REV.
97, 98, 106 (2003); Arthur S. Hartkamp, Modernisation and Harmonisation of
Contract Law: Objectives, Method and Scope, 8 UNIFORM L. REV. 81,
83–84 (2003).
[156]See Trakman,
supra note 114, at 44–45, 51–52 (noting the
“sociocultural traditions,” “political distinctiveness,”
and “different foreign investment philosophies” that parties to the
NAFTA wished to sustain); Leon E. Trakman, “Legal
Traditions” and International Commercial Arbitration, 17 AM.
REV. INT’L ARB. 1, 6–7, 23–25 (2006) (discussing
the influence of cultural and legal traditions on the late twentieth and
twenty-first century Law
Merchants).
[157]See infra
Part VI.B (discussing the contest among competing conceptions of autonomy in
relation to transnational arbitration); see also Pippa Read,
Delocalization of International Commercial Arbitration: Its Relevance in the
New Millennium, 10 AM. REV. INT’L ARB. 177 (1999) (discussing the
contract between a transnational and a localized Law Merchant); Matthew
Secomb,
Shades of Delocalisation: Diversity in the Adoption of the UNCITRAL Model Law
in Australia, Hong Kong and Singapore, 17 J. INT’L ARB. 123 (2000).
See generally JULIUS HENRY COHEN, COMMERCIAL ARBITRATION AND THE LAW
71–83 (2009); JULIAN D.M. LEW, LOUKAS A. MISTELIS & STEFAN M.
KRöLL,
COMPARATIVE INTERNATIONAL COMMERCIAL ARBITRATION 454 (2003);
CAMPBELL MCLACHLAN Q.C., LAURENCE SHORE & MATTHEW WEINIGER, INTERNATIONAL
INVESTMENT ARBITRATION(2007); MULTILATERALISM, REGIONALISM AND BILATERALISM IN
TRADE AND INVESTMENT: 2006 WORLD REPORT ON REGIONAL
INTEGRATION (Philippe De
Lombaerde ed., 2007); Douglas Yarn, The Death of ADR: A Cautionary Tale of
Isomorphism Through Institutionalization, 108 PENN. ST. L. REV. 929,
975–76 (2004).
[158]See infra Part
V.B; see also supra Part
IV.A–B.
[159]Marshall
McLuhan famously depicted the international “global village.” See
MARSHAL MCLUHAN, THE GUTENBERG GALAXY 31 (1962); MARSHALL MCLUHAN,
UNDERSTANDING MEDIA, 89–105 (1964). McLuhan’s thesis, well
preceding the cyberspace revolution, is
readily adaptable to it.
[160]See LEONARD GOMES,
THE ECONOMICS AND IDEOLOGY OF FREE TRADE (2003); DOUGLAS A. IRWIN, FREE TRADE
UNDER FIRE (3d ed. 2009) (discussing
the economics and ideology of freer trade);
see also INTERPRETATION OF THE LAW IN THE GLOBAL WORLD: FROM
PARTICULARISM TO A UNIVERSAL APPROACH (Joanna Jemielniak & Przemysław
Mikłlaszewicz eds., 2010) (discussing how law is interpreted in our
“new” global merchant world);TAKASHI KUBOTA,
CYBERLAW FOR GLOBAL
E-BUSINESS: FINANCE, PAYMENT AND DISPUTE RESOLUTION (2008) (discussing dispute
resolution in cyberspace).
[161]See, e.g.,
Ljiljana Biukovic, International Commercial Arbitration in Cyberspace: Recent
Developments, 22 NW. J. INT’L L. & BUS. 319, 333–34 (2002);
Bruce H. Kobayashi & Larry E. Ribstein, Uniformity, Choice of Law and
Software Sales, 8 GEO. MASON L. REV. 261, 263, 294–96 (1999)
[hereinafter Kobayashi & Ribstein, Uniformity]; Larry E. Ribstein
& Bruce H. Kobayashi, State Regulation of Electronic Commerce, 51
EMORY L.J. 1, 41–46 (2002) [hereinafter Ribstein & Kobayashi, State
Regulation]; Leon E. Trakman, The Boundaries of Contract Law in
Cyberspace, 2009 INT’L BUS. L.J. 159, 161–63.
[162]For an example of
e-consumer governance, see ECONSUMER.GOV,
http://www.econsumer.gov/english/index.shtm (last visited July 25, 2011).
See
generally Trakman, supra note 161, at 162–66.
[163]See, e.g.,
A. Brooke Overby, An Institutional Analysis of Consumer Law,
34 VAND. J. TRANSNAT’L L. 1219 (2001) (discussing the
institutionalization of consumerism in mass markets dominated by large
corporations); cf. Trade Fairs, WIKIPEDIA,
http://en.wikipedia.org/wiki/Trade_fair (last modified July 15, 2011)
(describing international trade fairs by which
usually large scale-corporations
market their products and services).
[164]See, e.g., ESTHER
VAN DEN HEUVEL, ONLINE DISPUTE RESOLUTION AS A SOLUTION TO CROSS-BORDER
E-DISPUTES: AN INTRODUCTION TO ODR, available at
http://www.oecd.org/dataoecd/63/57/1878940.pdf; see also LAW,
ENFORCEMENT, COMMUNICATIONS AND COMMUNITY (Howard Giles ed., 2002) (discussing
the influence of community values upon legal enforcement);
supra text
accompanying notes 70, 96–98 (describing medieval merchant guilds).
[165]ETHAN KATSH & JANET
RIFKIN, ONLINE DISPUTE RESOLUTION: RESOLVING CONFLICTS IN CYBERSPACE 61–63
(2001) (discussing the blind
bidding model in dispute resolution); Robert A.
Hillman, On-line Boilerplate: Would Mandatory Web Site Disclosure of
e-Standard Terms Backfire?, in BOILERPLATE: THE FOUNDATION OF MARKET
CONTRACTS 83 (Omri Ben-Shahar ed., 2007) [hereinafter BOILERPLATE]; Roger P.
Alford, The Virtual World and the Arbitration World, 18 J.
INT’L ARB. 449, 453–55 (2001); David R. Johnson & David Post,
Law and Borders—The Rise of Law in Cyberspace, 48 STAN. L. REV.
1367, 1378–95 (1996); A. Brooke Overby, UNCITRAL Model Law on
Electronic Commerce: Will Cyberlaw Be Uniform?, 7 TUL. J. INT’L &
COMP. L. 219, 233 (1999); Margaret Jane Radin & R. Polk Wagner, The Myth
of Private Ordering: Rediscovering Legal Realism in Cyberspace, 73 CHI.-KENT
L. REV. 1295, 1296, 1313–15 (1998); Trakman, supra note 161, at
175–80 (discussing the judicial treatment of assent in “wrap”
contracts).
[166]This
dominance can be statistically affirmed, for example, by the fact that volume of
investment by multinational corporations continues
to represent a majority of
global trade, notwithstanding the growth of the small investor. See FDI:
Issues, Benefits, and Risks, in BRYAN MERCURIO, LEON TRAKMAN,
MEREDITH KOLSKY LEWIS & BRUNO ZELLER, INTERNATIONAL BUSINESS LAW 413,420
(2009); see also infra Part V.A (discussing states affirming such
quasi-public
dominance).
[167]See,
e.g., BRUCE GREENWALD & JUDD KAHN, COMPETITION DEMYSTIFIED: A
RADICALLY SIMPLIFIED APPROACH TO BUSINESS STRATEGY 37–51 (2005);
Robert Z.
Lawrence, Towards Globally Contestable Markets, in MARKET ACCESS
AFTER THE URUGUAY ROUND: INVESTMENT, COMPETITION AND TECHNOLOGY PERSPECTIVES 25
(Org. for Econ. Co-operation and Dev.
ed.,
1996).
[168]This observation,
arguably, varies from Stewart Macaulay’s depiction of business parties
engaged in informal non-contractual
business relations based on mutual trust and
confidence. However, it supports the view that vulnerable business parties build
trust
and confidence inter se around their e-market vulnerabilities in relation,
inter alia, to dominant e-suppliers. See Stewart Macaulay, Freedom
from Contract: Solutions in Search of a Problem?, 2004 WIS. L. REV.
777; Stewart Macaulay, Non-Contractual Relations in Business: A Preliminary
Study, 28 AM. SOC. REV. 55, 62–67
(1963).
[169]See,
e.g., Jens Høj, Competition Law and Policy Indicators for
the OECD Countries (OECD Econ. Dep’t, Working Paper No. 568, 2007),
available at http://ideas.repec.org/p/oec/ecoaaa/568-en.html;
Richard J. Gilbert, Networks, Standards, and the Use of Market Dominance:
Microsoft (1995), in THE ANTITRUST REVOLUTION: ECONOMICS,
COMPETITION, AND POLICY 409 (John E. Kwoka, Jr. & Lawrence J. White eds., 3d
ed. 1998).
[170]See,
e.g., Lucian Bebchuk & Richard Posner, One Sided Contracts in
Competitive Consumer Markets[2006] MichLawRw 8; , 104 MICH. L. REV. 827 (2006) (discussing
barriers to dispute in mass consumer markets); Margaret Jane Radin,
Boilerplate Today: The Rise of Modularity and the Waning of Consent[2006] MichLawRw 47; , 104
MICH. L. REV. 1223 (2006); Florencia Marotta-Wurgler, “Unfair”
Dispute Resolution Clauses: Much Ado About Nothing?, in BOILERPLATE,
supra note 165, at 45 (finding that boilerplate dispute-resolution
clauses do not impose hardships on consumers). See also Todd D. Rakoff,
The Law and Sociology of Boilerplate[2006] MichLawRw 48; , 104 MICH. L. REV. 1235,
1237–38 (2006) (discussing the social, economic, and legal underpinnings
of standard form
contracting).
[171]Kuwait v.
Am. Indep. Oil Co., 21 I.L.M. 976, §III, para. 155 (Int’l Arb. Trib.
1982); Continental Shelf (Libya/Malta), Judgment, 1985 ICJ Rep. 13, 39 (Jun. 3);
Texaco
v. Libyan Arab Republic, Jan. 19, 1977, 17 I.L.M. 1, 13 (Int’l Arb.
Tribunal 1978); see also infra Part
V.
[172]The most common forms
of trade licenses are import and export licenses that are ordinarily specific to
the subject-matter being traded
rather than the person engaged in trade. See,
e.g., HANDBOOK ON INTERNATIONAL TRADE POLICY (William A. Kerr &
James D. Gaisford eds., 2007) (discussing trade policy, including its
relation
to licenses); see also supra Part
IV.B.
[173]This benefit comes
with an attendant threat that nation-states will, on grounds of state
sovereignty, decline to participate in investor-state
arbitration arising from
such investment treaties. See Joachim Karl, International Investment
Arbitration: A Threat to State Sovereignty?, in REDEFINING SOVEREIGNTY IN
INTERNATIONAL ECONOMIC LAW 225, 232–38 (Wenhua Shan et al. eds., 2008); M.
Sornarajah, A Coming Crisis: Expansionary Trends in Investment Treaty
Arbitration, in APPEALS MECHANISM IN INTERNATIONAL INVESTMENT DISPUTES LAW
39 (Karl P. Sauvant & Michael Chiswick-Patterson eds., 2008);
Amr A.
Shalakany, Arbitration and the Third World: A Plea for Reassessing Bias Under
the Specter of Neoliberalism, 41 HARV. INT’L L.J. 419, 438–52
(2000). For an argument that, despite limitations associated with sovereignty
that states
exercise over arbitration, a coherent body of international
investment law is evolving, see STEPHAN W. SCHILL, THE
MULTILATERALIZATION OF INTERNATIONAL INVESTMENT LAW 241–77 (2009); Calvin
A. Hamilton & Paula I.
Rochwerger, Trade and Investment: Foreign Direct
Investment Through Bilateral and Multilateral Treaties, 18 N.Y. INT’L
L. REV. 1, 4 (2005).
[174]See Charles N.
Brower & Stephan W. Schill, Is Arbitration a Threat or a Boon to the
Legitimacy of International Investment Law?, 9 CHI. J. INT’L L. 471,
473 (2009) (discussing the “legitimacy crisis” of international
investment arbitration);
Susan D. Franck, The Legitimacy Crisis in Investment
Treaty Arbitration: Privatizing Public International Law Through Inconsistent
Decisions, 73 FORDHAM L. REV. 1521 (2005) (same).
[175]However, nation-states
may treat most, if not all, foreign investors as a threat to protected sectors
of their domestic economies,
such as agriculture, the media, and broadcasting.
For a discussion of the history and difficulties faced by the WTO in unifying
the global trading community, inter alia, on account of both protected domestic
sectors and differential access granted to foreign
investors, see WTO and
Gatt Research, LIBGUIDES AT NYU LAW,
http://nyulaw.libguides.com/content.php?pid=55653&sid=428839 (last visited
July 25, 2011); WORLD TRADE
ORGANIZATION, http://www.wto.org/ (last visited July
25, 2011). Cf. Leon E. Trakman, Rejecting Investor State Arbitration
in Favor of Domestic Courts: The Australian Example, 46 J. WORLD TRADE
(forthcoming Feb. 2012) (discussing the impact on developing countries of
Australia’s decision to no longer
include arbitration clauses in its
investment
treaties).
[176]See
GLOBAL BACKLASH: CITIZEN INITIATIVES FOR A JUST WORLD ECONOMY (Robin
Broad ed., 2002); KENT JONES, WHO’S AFRAID OF THE
WTO? 48–104 (2004); Immanuel Ness, Community Labor Alliances: A
New Paradigm in the Campaign to Organize Greengrocery Workers in New York
City, in FROM ACT UP TO THE WTO: URBAN PROTEST AND COMMUNITY BUILDING
IN THE ERA OF GLOBALIZATION 57 (Benjamin Shepard & Ronald Hayduk
eds., 2002)
(discussing the transnational immigrant workers created by regional and global
integration).
[177]The
contextual benefit of foreign investment is conceived economically through
indices of productivity and growth. The assumption
is that economic growth is
determinative as a social benefit. See, e.g., Silvio Contessi
& Ariel Weinberger, Foreign Direct Investment, Productivity, and Country
Growth: An Overview, 91 FED. RES. BANK ST. LOUIS REV. 61 (2009),
available at
http://research.stlouisfed.org/publications/review/09/03/Contessi.pdf; UNCTAD,
WORLD INVESTMENT REPORT 2006, available at
http://www.unctad.org/en/docs/wir2006_en.pdf.
[178]It is arguable that the
various kinds of investment treaties, including with developing states,
ameliorate the argument that developed
states conclude them to the exclusion of
developing states. It is notable, too, that investor-state arbitrations are
brought against
both developing and developed states. UNCTAD estimates there
were 226 investment treaty arbitrations brought between 1987 and 2006,
with
two-thirds being filed since 2002. The figures are significantly larger given
confidential proceedings. See U.N. CONFERENCE ON TRADE & DEV., WORLD
INVESTMENT REPORT 2006—FROM DEVELOPING AND TRANSITION ECONOMIES:
IMPLICATIONS FOR
DEVELOPMENT, at 29, U.N. Sales No. E.06.II.D.II (2006),
available at http://www.unctad.org/en/docs/wir2006_en.pdf; see also
Ross Levine, Norman Loayza & Thorsten Beck, Financial Intermediation
and Growth: Causality and Causes, 46 J. MONETARY ECON. 31 (2000); Fiona
Marshall, Int’l Law Advisor, Int’l Inst. for Sustainable Dev.,
Address before
the Ecologic Institute: Investment, ICSID and Climate Change:
Turning Obstacles into Opportunities (Sept. 15, 2009), available at
http://ecologic.eu/soef/ineg/downloads/Marshall.pdf. On the ICSID, see
generally Leon E. Trakman, Challenges for the ICSID, in
INTERNATIONAL INVESTMENT LAW (forthcoming 2012).
[179]See supra notes 70
and 120 (discussing the institutional autonomy imputed to medieval merchant
guilds).
[180]The purpose of
double taxation treaties is to avoid over-taxing foreign investors while
ensuring that the treaty partners acquire
sufficient taxation. The problem is in
determining what is sufficient tax. See generally Tim Büthe &
Helen V. Milner, Bilateral Investment Treaties and Foreign Direct Investment:
A Political Analysis, in THE EFFECT OF TREATIES ON FOREIGN DIRECT
INVESTMENT 171 (Karl P. Sauvant & Lisa E. Sachs eds., 2009); Kobayashi &
Ribstein,
Uniformity, supra note 161, at 1–8.
[181]For a philosophical
challenge to efficiency as the basis of legal rights, see Dworkin, supra
note 27.
[182]For a
discussion of the tension between nation-state sovereignty and the global
community, see, for example, SHARIF BHUIYAN, NATIONAL LAW IN WTO LAW:
EFFECTIVENESS AND GOOD GOVERNANCE IN THE WORLD TRADING SYSTEM (2007) (discussing
the relationship of WTO law to the laws of nation-states); JOHN H. JACKSON,
Status of Treaties in Domestic Legal Systems: A Policy Analysis,
in THE JURISPRUDENCE OF GATT AND THE WTO: INSIGHTS ON TREATY LAW AND
ECONOMIC RELATIONS 328 (2000); ROBERT H. JACKSON, QUASI-STATES:
SOVEREIGNTY,
INTERNATIONAL RELATIONS AND THE THIRD WORLD (1990) (discussing the effect of
global agreement on third-world sovereigns);
1 OPPENHEIM’S INTERNATIONAL
LAW: PEACE 927 (Robert Jennings & Arthur Watts eds., 9th ed. 1992); Samuel
K.B. Asante, International Law and Foreign Investment: A Reappraisal, 37
INT’L & COMP. L.Q. 588 (1988); Robert Stumberg, Sovereignty by
Subtraction: The Multilateral Agreement on Investment, 31 CORNELL
INT’L L.J. 491 (1998); Jonathan Crystal, Presentation at the Annual
Meeting of the International Studies Association: Sovereignty and
the International Regulation of Foreign Direct Investment (Mar. 17–20,
2004), available at
http://citation.allacademic.com/meta/p_mla_apa_research_citation/0/7/3/1/7/pages73176/p73176-1.php;
see also Helen Hintjens, Social Movements, in 2
GLOBALIZATION AND SECURITY 369 (G. Honor Fagan & Ronaldo Munck eds.,
2009).
[183]See, e.g.,
Trakman, supra note 114, at 2–3, (“An important issue is the
need for international investment law to address conflicts arising out
of this
tension between state sovereignty and the liberalization of investment in a
manner that is principled, transparent, and evenhanded.
Accommodating the
equitable treatment of FDI while preserving the natural resources and other
public interests of host states requires
careful balancing.”). This issue
is addressed in part through the distinction between expropriation and
regulation. See, e.g., Céline Lévesque, Distinguishing
Expropriation and Regulation Under NAFTA Chapter 11: Making Explicit the Link to
Property, in THE FIRST DECADE OF NAFTA: THE FUTURE OF FREE TRADE IN
NORTH AMERICA 293 (Kevin C. Kennedy ed., 2004). For further discussion of
fairness, see Trakman, supra note 114, at 36 (discussing due process of
law), and for efficiency, see id. at 28, 46 (discussing the WTO and
NAFTA).
[184]See Leon E.
Trakman, The Proliferation of Free Trade Agreements: Bane or Beauty?, 42
J. WORLD TRADE 367, 368–69 (2008) (providing a contextual inquiry into the
regulation of merchant trade through modern bilateral trade agreements
directed
at enhancing trade).
[185]Such an ex post
determination includes, but is not limited to, scrutiny of competing
regulatory instruments, such as the nature and variety of international
investment treaties. See, e.g., Ryan J. Bubb & Susan
Rose-Ackerman, BITs and Bargains: Strategic Aspects of Bilateral and
Multilateral Regulation of Foreign Investment, 27 INT’L REV. L.
& ECON. 291, 296 (2007); Kenneth Vandevelde, A Brief History of
International Investment Agreements, 12 U.C. DAVIS J. INT’L L. &
POL’Y 157, 168–69 (2005).
[186]See Yas
Banifatemi, The Emerging Jurisprudence on the Most-Favoured-Nation Treatment
in Investment Arbitration, in INVESTMENT TREATY LAW: CURRENT ISSUES
241 (Andrea K. Bjorklund et al. eds., 2009).
[187]Such services are
generally now available at all leading arbitration centers. See
International ADR, AM. ARB. ASSOC., http://www.adr.org/sp.asp?id=28819
(last visited July 25, 2011); Statements, Codes and Rules, INT’L
CHAMBER OF COM., http://www.iccwbo.org/display7/doctype6/index.html (last
visited July 25, 2011); LCIA Arbitration Rules, LONDON COURT OF
INTERNATIONAL ARBITRATION,
http://www.lcia.org/Dispute_Resolution_Services/LCIA_Arbitration_Rules.aspx
(last visited
July 25, 2011).
[188]Leading international
arbitration associations generally present themselves as “full
service” centers. See, e.g., INT’L CHAMBER OF COM.,
http://www.iccwbo.org/ (last visited July 25, 2011); AM. ARB. ASSOC.,
http://www.adr.org/ (last visited
July 25, 2011); LONDON COURT OF INT’L
ARB., http://www.lcia.org/ (last visited July 26, 2011); WORLD INTELL. PROP.
ORG., http://www.wipo.int/index.html
(last visited July 25, 2011); CHINA
INT’L ECON. & TRADE ARB. COMM., http://www.cietac.org/index.cms (last
visited July
25, 2011); INT’L INST. FOR CONFLICT PREVENTION &
RESOL., http://www.cpradr.org/ (last visited July 25, 2011).
[189]See
Rent-A-Center v. Jackson, 130 S.Ct. 2772, 2777–78 (2010)
(arguing that an arbitrator as distinct from a court of law); see also
Matthew B. Cobb, Domestic Courts’ Obligation to Refer Parties to
Arbitration, 17 ARB. INT’L. 313 (2001) (surveying laws that obligate
courts to refer disputes to artbitration).
[190]See, e.g.,
HERBERT KRONKE, RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS : A
GLOBAL COMMENTARY ON THE NEW YORK CONVENTION 1–10
(2010); see also
Symeon C. Symeonides, supra note 109 (arguing against the
readiness with which American courts enforce the parties’ choice of law in
deference to the modern
Law Merchant, particularly in employment and consumer
cases). See generally ALBERT JAN VAN DEN BERG,THE NEW YORK ARBITRATION
CONVENTION OF 1958 : TOWARDS A UNIFORM JUDICIAL INTERPRETATION 81–120,
233–382
(1981) (discussing the enforcement of foreign arbitral awards
under domestic law and under the New York
Convention).
[191]See,
e.g., Pierre Lalive, On the Neutrality of the Arbitrator and of
the Place of Arbitration, in RECUEIL DE TRAVAUX SUISSES SUR
L’ARBITRAGE INTERNATIONAL 23, 27 (Claude Reymond & Eugene Bucher eds.,
1984).
[192]See,
e.g., Michael Pryles, Multi-Tiered Dispute Resolution Clauses, 18 J.
INT’L ARB. 159, 159 (2001); Leon E. Trakman, Appropriate Conflict
Management, 2001 WIS. L. REV. 919, 925.
[193]North American Free Trade
Agreement, U.S.-Can.-Mex., art. 2022, Dec. 17, 1992, 32 I.L.M. 289 (“Each
Party, shall to the maximum extent possible, encourage and facilitate the use of
arbitration and other means of alternative
dispute resolution for the settlement
of international commercial disputes between private parties in the free trade
area.”);
see also NORTH AMERICAN FREE-TRADE AGREEMENTS: CHAPTER 11
INVESTOR-STATE ARBITRATION (James R. Holbein & Donald J. Musch eds., 2008);
Barton
Legum, The Innovation of Investor-State Arbitration Under NAFTA,
43 HARV. INT’L L.J. 531 (2002); Matthew C. Porterfield, An
International Common Law of Investor Rights?, 27 U. PA. J. INT’L ECON.
L. 79 (2006); Leon E. Trakman, Arbitrating Investment Disputes Under the
NAFTA, 18 J. INT’L ARB. 385 (2001).
[194]UNCITRAL Model Law on
International Commercial Arbitration, UNCITRAL (2006),
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration.html
(last visited July 24, 2011); UNCITRAL Arbitration Rules, UNCITRAL (Dec.
6, 2010),
http://www.uncitral.org/pdf/english/texts/arbitration/arb-rules-revised/arb-rules-revised-2010-e.pdf
(last
visited July 25,
2011).
[195]For scholarly
treatment of the problems in enforcing arbitral awards globally, see
Francine Banner, Ken Miller & Doris Marie Provine, Foregin Law in
American Jurisprudence: An Empirical Study, in GLOBALIZING JUSTICE:
CRITICAL PERSPECTIVES ON TRANSNATIONAL LAW AND THE CROSS-BORDER MIGRATION OF
LEGAL NORMS 27 (Donald W. Jackson
et al. eds., 2010) [hereinafter GLOBALIZING
JUSTICE]; ; Fabien Gélinas, Arbitration and the Challenge of
Globalization, 17 J. INT’L. ARB. 117, 120–21 (2000); David M.
O’Brien, The U.S. Supreme Court’s Use of Comparative Law in the
Construction of Constitutional Rights, in GLOBALIZING JUSTICE,
supra note 195, at 7; Christopher A. Whytock, Foreign Law in Domestic
Courts: Different Uses, Different Implications, in GLOBALIZING
JUSTICE, supra note 195, at 45.
[196] See Statements, Codes
and Rules, INT’L CHAMBER OF COM.,
http://www.iccwbo.org/display7/doctype6/index.html (last visited July 25, 2011).
[197]See Major Arbitration
and Mediation Rules and ADR Programs: International ADR, AM. ARB. ASSOC.,
http://www.adr.org/sp.asp?id=28819 (last visited July 25, 2011).
[198]The London Court of
International Arbitration, LCIA, http://www.lcia.org (last visited July 25,
2011).
[199]See Leon E.
Trakman, Arbitration Options: Turning a Morass into a Panacea, 41 U. NEW
S. WALES L.J. 292 (2008) (discussing the variety of regional arbitration
associations that have evolved globally).
[200]See CHARTERED
INST. OF ARBITRATORS, http://www.ciarb.org (last visited July 25, 2011).
[201]See, e.g.,
Edward R. Leahy & Carlos J. Bianchi, The Changing Face of International
Arbitration, 17 J. INT’L ARB. 19, 26 (2000) (explaining the cost and
time efficiency of market arbitration centers); Keith Mason, President,
New
South Wales Court of Appeal, Keynote Address at the International Conference on
International Commercial Arbitration: Changing Attitudes in the Common
Law’s Response to International Commercial Arbitration (March 9,
1999), available at
http://www.lawlink.nsw.gov.au/lawlink/supreme_court/ll_sc.nsf/pages/SCO_speech_mason_090399;
see also V.V. Veeder, The 2001 Goff Lecture—The Lawyer’s
Duty to Arbitrate in Good Faith, 18 ARB. INT’L 431 (2002)
(discussing the duty of transnational arbitrators to decide in good
faith).
[202] See
Trakman, supra note 199, at 296–97 (analyzing the argument that
arbitration is more efficient than court proceedings); id. at 302 (noting
that arbitration providers cater to customer demands).
[203]See, e.g.,
NIGEL BLACKABY & CONSTANTINE PARTASIDES WITH ALAN REDFERN & MARTIN
HUNTER, REDFERN AND HUNTER ON INTERNATIONAL ARBITRATION
1–83 (2009); GARY
B. BORN, INTERNATIONAL COMMERCIAL ARBITRATION 2–3 (2009).
[204]See Earl Wolaver,
The Historical Background of Commercial Arbitration, 83 U. PA. L. REV.
132, 135–36 (1934).
[205]See Ricky H.
Diwan, Problems Associated with the Enforcement of Arbitral Awards Revisited:
Australian Consumer Protection; Conflict of Laws; an English
Law
Perspective, 19 ARB. INT’L 55, 57 (2003); Dana H. Freyer, United
States Recognition and Enforcement of Annulled Foreign Arbitral Awards: The
Aftermath of the Chromalloy Case, 17 J. INT’L ARB. 1, 8−9
(2000) (discussing the boundaries delimiting the enforcement of arbitration
awards); see also Alessandra Casella, On Market Integration and the
Development of Institutions: The Case of International Commercial
Arbitration, 40 EUR. ECON. REV.155, 159−62 (1995). See generally
YVES DEZALAY & BRYANT G. GARTH, DEALING IN VIRTUE: INTERNATIONAL
COMMERCIAL ARBITRATION AND THE CONSTRUCTION OF A TRANSNATIONAL
LEGAL ORDER
(1996) (providing an overview of international commercial arbitration). But
see Stefan Voigt, Are International Merchants Stupid?—Their Choice
of Law Sheds Doubt on the Legal Origin Theory, 5 J. EMPIRICAL LEGAL STUD. 1,
9 n.7 (2008) (citing JAN KROPHOLLER, INTERNATIONALES EINHEITSRECHT (1975)),
available at http://www.ssrn.com/abstract=982202.
[206]See generally
Pippa Read, Delocalization of International Commercial Arbitration: Its
Relevance in the New Millennium, 10 AM. REV. INT’L ARB. 177 (1999);
Secomb, supra note 157 (discussing the “delocalization” of
transnational arbitration from domestic legal institutions and processes).
[207]See ALAN REDFERN, MARTIN HUNTER & MURRAY SMITH, LAW AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION 479-81 (2nd ed. 1991) (discussing the procedural framework for a transnational arbitration).
[208]See SORNARAJAH,
supra note 136, at 334–38; CHRISTIAN TIETJE, INTERNATIONAL
INVESTMENT PROTECTION AND ARBITRATION 25, 29 (2008); see also supra Part
II.A.
[209]See I.F.
Shihata & A.R. Parra, Applicable Substantive Law in Disputes Between
States and Private Foreign Parties: The Case of Arbitration Under the ICSID
Convention, in Ibrahim F.I. Shihata & Antonio R. Parra,
Applicable Substantive Law in Disputes Between States and Private Foreign
Parties: The Case of Arbitration Under the ICSID Convention, in
PLANNING EFFICIENT ARBITRATION PROCEEDINGS 294, 304–05, 316 (Albert van
den Berg ed., 1996); Stephan W. Schill, Fair and Equitable Treatment Under
Investment Treaties as an Embodiment of the Rule of Law 15−20 (Inst.
for Int’l Law & Justice, Working Paper 2006/6), available at
http://www.iilj.org/publications/documents/2006-6-GAL-Schill-web.pdf; see
also Int’l Thunderbird Gaming Corp. v. Mexico, NAFTA/UNCITRAL Tribunal
(Jan. 26, 2006), 192–97, available at
http://ita.law.uvic.ca/documents/ThunderbirdAward.pdf [hereinafter
Thunderbird]; GAMI Investments, Inc. v. Mexico, UNCITRAL/NAFTA
Arbitration (Nov.
15, 2004), 83, 122–33,
http://ita.law.uvic.ca/documents/Gami.pdf; Saluka Investments BV (The
Netherlands)
v. The Czech Republic, UNCITRAL Arbitration (Mar. 17, 2006),
281, 282–308, 309, available at
http://www.pca-cpa.org/upload/files/SAL-CZ%20Partial%20Award%20170306.pdf
[hereinafter Saluka]; . See generally Rom K.L. Chung, The Rules of
Natural Justice in Arbitration, 77 J. INT’L ARB. MED. & DISP.
MGMT. 167 (2011).
[210]For example, the argument
in favor of arbitration tribunals deciding investment disputes is usually
couched as side stepping domestic
courts. However, critics debate the prospects
of arbitral decisions being nullified, or varied, by local courts, notably under
Chapter
11 (Investment) of NAFTA. See Loewen Grp., Inc. v. United States
of America, ICSID Case No. ARB(AF)/98/3, Final Merits Award, (June 26, 2003), 42
I.L.M. 811 (2003); Mondev Int’l Ltd. v. United States of America,
ICSID Case No. ARB(AF)/99/2, Final Merits Award, (Oct. 11, 2002), 42 I.L.M.
85 (2003) [hereinafter Mondev]. See generally Bradford K. Gathright,
A Step in the Wrong Direction: The Loewen Finality Requirement and the Local
Remedies Rule in NAFTA Chapter 11, 54 EMORY L.J. 1093 (2005) (discussing
judicial review of the Loewen Chapter 11 decision); Dana Krueger, The
Combat Zone: Mondev International, Ltd. v. United States and the Backlash
Against NAFTA Chapter 11, 21 B.U. INT’L L.J. 399 (2003) (arguing that,
but for a technical time bar, two Tribunal decisions—Mondev and
Loewen—might have prevailed over American judicial decisions).
[211]See Charles N.
Brower & Stephan W. Schill, Is Arbitration a Threat or a Boon to the
Legitimacy of International Investment Law?, 9 CHI. J. INT’L L.
471, 489−95 (2009) (discussing the legitimacy of investment arbitration
generally); Saksham Chaturvedi
& Chanchal Agarwal, Jurisdiction to
Determine Jurisdiction, 77 J. INT’L ARB. MED. & DISP. MGMT.
201 (2011); Stefan Kirchner, Transnational Law and the Choice-of-Law
Competence of Arbitral Tribunals in International Commercial Arbitration
(2007), available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=988677; see also
John J. Barceló III, Who Decides the Arbitrators’
Jurisdiction? Separability and Competence-Competence in Transnational
Perspective, 36 VAND. J. TRANSNAT’L L. 1115, 1118–19 (2003)
(outlining various other grounds on which arbitrator jurisdiction may
be
challenged, such as an invalid or unenforceable arbitration clause); Pierre
Lalive, Irresponsibility in International Commercial Arbitration, 7
ASIA-PACIFIC L. REV. 161, 163 (1999) (noting the dubious competence of
“newcomer” arbitrators who lack the knowledge,
know-how, and
experience to handle complex
matters);.
[212]See
Trakman, From the Medieval Law Merchant to e-Merchant Law,
supra note 4, 285−90 (discussing the efficiency of online
resolution of domain-name disputes under the auspices of such institutions
as
the World Intellectual Property Association
(WIPO)).
[213]Notwithstanding
efforts to establish a system of online document filing under Chapter 19 of the
NAFTA, dealing with dumping and countervailing
duties, that online filing system
never materialized. Reasons considered were: discomfort with new technologies,
costs of online
servicing, concern about breaches of confidentiality, worries
about the breakdown of e-communication, and greater confident in face-to-face
processes. The issue is increasingly academic today, as dispute settlement under
Chapter 19 of the NAFTA is itself now increasingly
historical. The website of
the Canadian Secretariat of the NAFTA lists the history of NAFTA disputes.
See NAFTA Secretariat, Decisions and Reports,
http://www.nafta-sec-alena.org/en/DecisionsAndReports.aspx?x=312 (last
visited July 25,
2011).
[214]The contention here
is that, the wider the choice and the greater the difference in experience among
centers, the more complicated
parties may find the task of making suitable
arbitration choices and the more potentially diverse the results of such
choices. See Thomas E. Carbonneau, The Ballad of Transborder
Arbitration, 56 U. MIAMI L. REV. 773, 774 (2002); Trakman, supra note
199, at 292.
[215]See
generally Theodore Eisenberg & Geoffrey P. Miller, The Flight from
Arbitration: An Empirical Study of Ex Ante Arbitration Clauses in
Publicly-Held Companies’ Contracts (2006), available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=927423 (discussing the ad
hoc nature of arbitration as one reason for a “flight
from
arbitration”).
[216]See Trakman,
Arbitration Options, supra note 199, at 292. See also Luis
Abugattas Majluf, UNCTAD, Swimming in the Spaghetti Bowl: Challenges for
Developing Countries Under the “New Regionalism” 7, 13 (Policy
Issues in Int’l Trade & Commodities, Study Series No. 27, 2004)
(discussing the notion of “new regionalism,”
its interplay with the
multilateral trading system, and developing countries’ favoritism for
foreign investors in the context
of Regional Trade Agreements).
[217]For an economist’s
analysis of the limited data that is provided by, among others, international
arbitration associations, on
the resort to international commercial arbitration
including as an alternative to national courts and its perceived strengths and
deficiencies, see Voigt, supra note 205, at 12 (“Most
of the organizations replied that they do not produce such statistics and that
they were not able to
produce them expressly for
us.”).
[218]See
Giuditta Cordero Moss, Commercial Arbitration and Investment Arbitration:
Fertile Soil for False Friends?, in INTERNATIONAL INVESTMENT LAW FOR
THE 21st CENTURY: ESSAYS IN HONOUR OF CHRISTOPH SCHREUER 782, 782−84
(Christina Binder et
al. eds., 2009) (explaining the distinction between
arbitration and investment arbitration, and whether investment arbitration is
truly “arbitration”); Jan Paulsson, International Arbitration is
Not Arbitration, 2 STOCKHOLM INT’L ARB. REV. 1 (2008), available at
http://www.arbitration-icca.org/media/0/12331138275470/siar_2008-2_paulsson.pdf.
[219]See
generally Barceló III, supra note 211; Kirchner,
supra note 211.
[220]Historically, Article 38
of the Charter of the Permanent Court of International Justice provided for the
court to reach decisions
ex aequo et bono, but jurists avoided doing so
on principle. See, e.g., Free Zones of Upper Savoy and the
District of Gex (France v. Switz.), 1929, P.C.I.J. (ser.s A) No. 22, at
5–7, 21–22,
34–40 (Aug. 19) (Kellogg, J.), available at
http://www.icj-cij.org/pcij/serie_A/A_24/80_Zones_franches_Haute_Savoie_et_Pays_de_Gex_2e_phase_Observations_Kellogg.pdf.
[221] See
Oberlandesgericht München [OLG] [Higher Regional Court of Munich] Case
No. 34 Sch 10/05, (holding that ICSID arbitrators may
only decide ex aequo et
bono where the parties expressly authorize
it).
[222]See Robert D.
Cooter, Decentralized Law for a Complex Economy: The Structural Approach to
Adjudicating the New Law Merchant, 144 U. PA. L. REV. 1643, 1648–50
(1996) (discussing the interface between party autonomy and legal regulation in
complex economies). But see SORNARAJAH, supra note 136, at 306
(noting that parties to treaty-based arbitration regularly seek to avoid
arbitration by asserting challenges to the
arbitral tribunal’s
jurisdiction); W. Michael Reisman, Dallas Workshop 2001: International
Arbitration and Sovereignty, 18 ARB. INT’L 231, 235−39 (2002).
[223]On difficulties in
establishing and applying international commercial law in arbitration
proceedings in diverse legal environments,
see Lalive, supra note 211, at
163, 170. See also Amr A. Shalakany, Arbitration and the Third World:
A Plea for Reassessing Bias Under the Specter of Neoliberalism, 41 HARV.
INT’L L.J. 419, 425, 443 (2000) (discussing the difficulties of
establishing and applying law in arbitration proceedings
in diverse legal
environments); Veeder, supra note 201.
[224]For renewed interest in
applying the doctrine ex aequo et bono to international arbitration, see
ICC Task Force on Amiable Composition and ex aequo et bono in
September 2005 with the mandate (1) “to identify the essential features of
amiable composition and of ex aequo et bono” and (2) to
“study the role of the arbitrators when acting as amiable
compositeurs or when deciding ex aequo et bono, [particularly]
jurisdictional, procedural, or substantive problems that may arise”. The
Task Force is co-chaired by Edouard
Bertrand (France) and Ronald King (United
Kingdom). See Task Force on Amiable Composition and ex aequo et
bono, Int’l Chamber of Commerce, ARBITRATION COMMISSION,
http://www.iccwbo.org/policy/arbitration/id6566/index.html
(last visited July
25, 2011). The ICC provides for arbitration ex aequo et bono with the
consent of the parties. See ICC, International Court Rules of
Arbitration, art. 17, 36 I.L.M 1606, 1612 (1997).
[225]See Pierre Mayer,
Reflections on the International Arbitrator’s Duty to Apply the
Law—The 2000 Freshfields Lecture, 17 ARB. INT’L 235,
241−47 (2001) (discussing the duty of arbitrators to apply “the
law”). But see Manfred Lachs, Equity in Arbitration and in
Judicial Settlement of Disputes, 6 LEIDEN J. INT’L L. 323, 325,
326−29 (1993) (arguing that “equity is built into the legal
system”).
[226]Sir
Hersch Lauterpacht was a prominent jurist who shunned the use of the ex aequo et
bono doctrine. See HERSCH LAUTERPACHT, THE DEVELOPMENT OF INTERNATIONAL
LAW BY THE INTERNATIONAL COURT 217 (1958); HERSCH LAUTERPACHT, THE FUNCTION OF
LAW IN THE INTERNATIONAL COMMUNITY 379 (1933); see also JACKSON H.
RALSTON, INTERNATIONAL ARBITRATION FROM ATHENS TO LOCARNO 22−26 (1929);
W.T. Barbour, The History of Contract in Early English Equity,
in 4 OXFORD STUDIES IN SOCIAL AND LEGAL HISTORY 1, 158–64 (Paul
Vinogradoff ed., 1914); John E.C. Brierley, “Equity and Good
Conscience” and Amiable Composition in Canadian Arbitration Law, 19
CAN. BUS. L.J. 461, 465−68 (1991); UNITED NATIONS CONFERENCE ON
TRADE AND DEV., DISPUTE SETTLEMENT, INTERNATIONAL CENTRE FOR SETTLEMENT OF
INVESTMENT DISPUTES: APPLICABLE
LAW 29 (2003), available at
http://www.unctad.org/en/docs/edmmisc232add5_en.pdf (describing the use of
the word “equitable” in § 9 of the UNCTAD
to refer to decisions
ex aequo et bono as distinct from the law of equity).
[227]See Barceló III, supra note 211.
[228]See Kirchner,
supra note 211 (discussing the choice-of-law competence of transnational
arbitrators). See also Kobayashi & Ribstein, Uniformity,
supra note 161, at 261 (1999); Ribstein & Kobayashi, State
Regulation, supra note 161, at 1 (discussing uniformity and choice of
law).
[229]An online version
of the New York Convention is available at
http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention.html.
See also ALBERT JAN VAN DER BERG, THE NEW YORK ARBITRATION CONVENTION OF
1958: TOWARDS A UNIFORM JUDICIAL INTERPRETATION (1981) (analyzing
the New York
Convention with a focus on its uniform judicial interpretation). But see
Sajida A. Mahdi, Gateway to Arbitration: Issues of Contract Formation Under
the U.C.C. and the Enforceability of Arbitration Clauses Included in Standard
Form Contracts Shipped with Goods, 96 NW. U. L. Rev. 403, 418 (2001)
(treating the enforceability of arbitration associated with the sale of goods
under the UCC).
[230]This
assumption is implicit in both a spontaneous and a planned merchant order.
See supra Part
I.
[231]See Andreas F.
Lowenfeld, Lex Mercatoria: An Arbitrator’s View, 6 ARB. INT’L
133, 146 (1990) (discussing the influence of the Western legal tradition upon
the institutionalization of arbitration
in developed states in the latter half
of the twentieth century); Trakman, supra note 156, at 10. See
generally COLLIER, supra note 44; NAóN, supra note 110,
at 60 (arguing that arbitrators will apply or consider national laws to
determine whether parties’ exercised free
choice in concluding their
agreement).
[232]This is a
well-tested proposition in regard to one-sided adhesion contracts in general.
See, e.g., Friedrich Kessler, Contracts of Adhesion—Some
Thoughts About Freedom of Contract, 43 COLUM. L. REV. 629, 641–42
(1943); see also Henningsen v. Bloomfield Motors, Inc., 161 A.2d
69, 87 (N.J. 1960) (“Extreme inequality of bargaining between buyer and
seller [regarding adhesion contracts] . . . is now often
conspicuous. Many
buyers no longer have any real choice in the matter.” (quoting LAWRENCE
VOLD, HANDBOOK OF THE LAW OF SALES
447 (2d ed. 1959)) (discussing judicial
responses to adhesion contracting)).
[233]These global cities
include, among others, London, Paris, and New York. See Trakman, supra
note 199, at 292–305. See also YONG-SHIK LEE, RECLAIMING
DEVELOPMENT IN THE WORLD TRADING SYSTEM 47 n.171 (2006) (describing developing
nations’ difficulties
in attending meetings in such cities).
[234]For instance, some
parties may avoid arbitration conducted by the American Arbitration Association
(AAA) due to the perception protracted
hearings, lengthy delays, extensive
witness examinations, and voluminous arbitral awards. See
International Centre for Dispute Resolution, AMERICAN ARBITRATION
ASSOCIATION: MAJOR ARBITRATION AND MEDIATION RULES AND ADR PROGRAMS,
http://www.adr.org/sp.asp?id=28819 (last
visited July 25, 2011) (discussing
arbitration before the International Center for Dispute Resolution of the AAA).
See also International Dispute Resolution Procedures,
AMERICAN ARBITRATION ASSOCIATION, http://www.adr.org/sp.asp?id=33994
(last visited July 25, 2011) (explaining the rules and procedures of the
International Centre for
Dispute Resolution of the AAA). See generally
Kevin M. Clermont & Theodore Eisenberg, Xenophilia in American
Courts, 109 HARV. L. REV. 1120 (1996) (explaining the complexity of
litigation within the United States justice system). For a classical refutation
of the litigation
crisis in the United States, see Marc Galanter,
Afterword: Explaining Litigation, 9 LAW & SOC’Y REV. 347
(1975), reprinted in part in AMERICAN COURT SYSTEMS (S. Goldman & A.
Sarat eds., 1978).
[235]See
Trakman, supra note 156, at 1, 14.
[236]For example, it is
sometimes suggested that Chinese courts are readier to enforce the awards
derived from home spun arbitration centers
like the China International Economic
and Trade Arbitration Centre (CIETAC) than those of foreign arbitration centers.
See J. MCCONNAUGHAY & THOMAS B. GINSBURG, INTERNATIONAL COMMERCIAL
ARBITRATION IN ASIA 95–200 (Philip J. McConnaughay &
Thomas B.
Ginsburg eds., 2d ed. 2006); JINGZHOU TAO, RESOLVING BUSINESS DISPUTES IN CHINA
(2005) ; see also CHINA INTERNATIONAL ECONOMIC AND TRADE ARBITRATION
COMMISSION, http://www.cietac.org/index.cms (last visited July 25, 2011).
[237]Scholars have noted
an alleged double standard by which the United States favors arbitration as a
means of constraining interference
by foreign governments with private
investment while disfavoring arbitration filed against the U.S. government under
Chapter 11 of
the NAFTA. Guillermo Aguilar Alvarez & William W. Park, The
New Face of Investment Arbitration: NAFTA Chapter 11, 28 YALE J.
INT’L L. 365, 368–69
(2003).
[238]See KYRIAKI
NOUSSIA, CONFIDENTIALITY IN INTERNATIONAL COMMERCIAL ARBITRATION: A COMPARATIVE
ANALYSIS OF THE POSITION UNDER ENGLISH, US,
GERMAN AND FRENCH LAW (2010);
Anjanette H. Raymond, Confidentiality in a Forum of Last Resort: Is the Use
of Confidential Arbitration a Good Idea for Business and Society?, 16 AM.
REV. INT’L ARB. 479 (2005); Leon E. Trakman, Confidentiality in
International Commercial Arbitration, 18 ARB. INT’L 1 (2002)
(discussing the predominantly private and confidential nature of transnational
arbitration).
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