LEX MERCATORIA: CAN LAWS EXIST WITHOUT THE STATE?
As a theory, the Lex Mercatoria is not only perplexing in its’ suggestions but entirely controversial in its’ acceptance; of which, would mean the absolute repudiation of established legal dogma and understanding. Specifically, it centers around the existence of an ‘autonomous legal system’ that ostensibly occupies a space which is independent and distinct from domestic legal systems and public international law. What is more controversial, is that the proponents of the theory alleges that the sources of this legal system is also dissociated from domestic legal systems, rather the system is not only ‘self-originating’ but also ‘self-perpetuating’. Altogether these propositions challenge the ‘conventional’ view of the nature and the origins law and legal systems. They are entirely irreconcilable with orthodox legal understanding(particularly legal positivism), that naturally the existence of the Lex Mercatoria has not been widely accepted. Contrastingly, there have been fierce criticisms directed at the theory and attempts made to entirely refute it. Consequently, it is the objective of this discourse to examine the matter and to critically consider the viability and the existence(and potential for existence) of the Lex Mercatoria as an autonomous legal system. In order to achieve this aim and hopefully contribute to any illumination of the matter; the discourse will explore and analyse relevant concepts and arguments associated with the Lex Mercatoria, jurisprudential conceptions of law and engage in the dialectics of the relevant sentiments to ultimately come to the conclusion that: the Lex Mercatoria does indeed exist in its original conception.
What is the Lex Mercatoria ?
We shall begin this discourse with an examination of what is meant by the term “Lex Mercatoria” when it is used within the context of this discourse. This by itself, is not an undemanding task as there is to date, no absolute or exact definition of the term that has been entirely accepted by legal academia. Variations do exist from author to author, in the form of either limiting or widening, trivially or substantially the scope of the term.These variations are important and fascinating by their own right and are as worthy of vigorous academic perusal; however, due to the confines of this discourse, we shall demarcate the matter to conclude that their importance lay in the indications they pose. Essentially, they reflect and we might naturally deduce that, authors in their objectives of identification, are at odds of what exactly exists; inferentially, the issue of existence is tied up firmly to that of definition. Therefore, the Lex Mercatoria has meant “many things to different people’.
However, in our quest for a critical consideration of the viability of the concept in its entirety, this is an unsatisfactory determination. To be able to make our own unfettered conclusions of the matter in totality, we must disregard the conclusions made by others; and avoid engaging in any acute forms of post-hoc rationalization. Thus, our referral to Lex Mercatoria here, embraces it at its widest and perhaps most ambitious interpretation. In its usages here, the term refers to a legal system that is seemingly, independently and necessarily ‘derived’ from merchants and/or mercantile activity for such activities. In its characteristics, it is a body-of-law (both substantive and procedural), that is unique to merchants and mercantile activity in that it emphasizes and realizes important principles such as that of party-autonomy, contractual sovereignty, non-discrimination, certain practical/mercantile customs and usages1. With its enforcement and operation being carried out by merchants/practitioners for the practical interests and needs of mercantile activity. It is also simultaneously, distinct from municipal legal systems, in that eschews mechanical and technical application of laws that define these systems and instead adopts a quick, efficient and an contrasting ‘ex aequo et bono’ approach in its legal administration. Altogether, ideally and in brief the term refers to a system of law that is not only comparatively distinct in nature but it is also one that operates independently from municipal legal systems in the transnational plane.
This definition is most true to the original concoction of the term and certainly its direct translation as the ‘Law Merchant’(Merchant’s Law); in which it was used to describe a unique legal-phenomenon in the medieval periods ; where there arose a body of:
“ancient laws and practices laid down by merchants in the medieval times as they traded “om place to place”. It was essentially “a legal regime for trade beyond ‘local’ borders…a legal system operated by traders and their agents [for trade]…[which] enabled merchants to…avoid submitting to the authority of judges attached to pre-existing jurisdictions…[a] regime [which] was ‘voluntarily produced, voluntarily adjudicated and voluntarily enforced.[Embodying] certain constitutive principles, including: good faith; reciprocity, non-discrimination between ‘foreigners’ and ‘locals’…conflict resolution favoring equity settlements. In practice, the M erchant’s Law required traders to use contracts, which were gradua’y standardized, and to settle their disputes in courts staffed by other merchants, actual practitioners and experts, not generalists. Traders and their merchant judges placed a premium on quick judgments, and de-emphasized adversarial procedure…”
A total exposition of the Lex Mercatoria in its’ medieval and initial reference is beyond the scope of this discourse; nevertheless, it has to be made clear, that this phenomenon is widely documented in legal academia. For our purposes here, the ultimate question that arises is whether such a legal system aforementioned, exists in the modern context of today. It is here, legal-controversy begins to materialize as there are countless proponents, who claim that there has been a successful and veritable transposition of the legal system into the contemporary context; such that, there is now indubitably, an existing ‘transnational’ legal system- a fully- fledged Lex Mercatoria.
The claims made here oscillate in different forms; but they converge on the main point that there is a current legal-phenomenon that can be familiarly identified as, if not the exact duplication then an incredibly formidable form of, the Lex Mercatoria. Their supposition and, sometimes unquestionable, commitment is based on the fact that in recent years, there has been an advent of peculiar affairs. To be specific, there has been a rise and consolidation of, what may be loosely called here in aggregation, ‘commercial private governance’ in the field of international-trade to date; which systematically resembles the ‘legal regime’ of the Lex Mercatoria.
The characterization of this ‘commercial private governance’ can be described sufficiently illustrated in the following manner. Namely, there are now in existence and in routine utilisation by international commercial parties: (a) Private ‘international’ commercial contracts (sometimes standardised) that (often) effectively and explicitly exclude national contractual laws as laws governing the contractual relationships of the parties; instead opting for other forms of “extra-contractual” laws, principles and terms not traditionally recognised by municipal courts; (b) A- national terms, rules and principles rooted in commercial activity, formulated by transnational ‘formulating agencies’ which parties voluntarily adopt as part of their “contractual-laws”.
They also serve as “legal principles” in that they may guide enforcers(i.e. arbitrators) in the proper enforcement of their contractual-governance; e.g. the UNIDROIT Principles, (c) Extensive international arbitration networks, which are autonomous from national-courts and transnational in nature, such as the ICC,AIA, etc., constituted by arbitrators who are qualified in their specialities rather than their allegiance to a particular legal system. (d) Commercially efficient and pragmatic arbitration process and proceedings that constitute international arbitration, which (may and often) bifurcate from national laws. They are entirely divergent from ordinary national-judicial processes, in manner and in form, with its particularly emphasis on the principles, important to commercial reality, that of party-autonomy, contract-sovereignty, customary practices and pragmatic usages, equity and occasionally with direct reference to the principles of the “lex mercatoria” in its resolution.
Expounding on this characterisation, many international businesses and traders have in recent years ceased to rely on ‘domestic public governance’ of their international commercial activities in the traditional sense and have instead resorted to independent private undertakings in the management and oversight of such activities in the forms mentioned above. Specifically, there has been a substantial diminution on the reliance of municipal laws or public international laws, equivalent legal bodies, procedures and mechanisms in the enforcement of the trader’s rights within the context of international trade/business; marked in contrast with an substantially increased utilisation of the structures of ‘commercial private governance’. The prevalence, not only of ‘commercial private governance’, but ‘commercial private governance’ in all its aspects (a.~d.) has not only made it ‘customary’ in the context of international commerce but entirely- systematic. In consideration, the routine utilization’ and systemization of ‘commercial private governance’ in its entirety, is perhaps not completely astonishing; as the exigencies of international business have made it inevitable; business has always required certainty, efficiency, practicality, flexibility and autonomy. Vital criterions that are threatened in the complexity of the international realm, but effectively lost by the domination of this already complex realm, by differing equally complex “national-legal systems”, their claims of ascendency and their insensitively prolix, bureaucratic and perplexing procedures/approach that embody their application.
The implications here are simply extraordinary if these considerations are firmly accepted descriptively. Specifically, the capability of the private parties, to autonomously formulate, utilize and rely on legal principles and a body of transnational law that is privately validated and en- forced through transnational legal mechanisms and its’ procedures would imply the existence of a legal regime that is entirely independent and autonomous from national-legal systems. It or its equivalent “general principles of transnational law” which has been interpreted to have equal-meaning. 8 that is the governance of their commercial affairs via domestic states/legal spheres would not only mean that the Lex Mercatoria does in fact exist in today’s context, as is the pertinent conclusion that has already been deduced by many of its proponents; but more importantly, this would challenge our very own established understandings of the nature of Law. This is a highly unsung ramification of such a conclusion, that we must explore.
THE NATURE OF LAW & THE LAW MERCHANT
To encapsulate it concisely, our conventional understandings of Law; based on orthodox western-jurisprudence, (principally, dominated by the doctrines of legal positivism10 ,)established legal and political thought(principally, dominated by the theories of representative- democracy) have for centuries seen the law in a very particular and formulaic manner that is inimical to the existence of the Lex Mercatoria(or atleast what is suggested above). Chiefly, the Law is seen largely as the postulations of the State employed in societal-governance(i.e. legislation of governmental bodies, like the legislature). They are societal rules created as such, however they are very distinct from ordinary rules, customs and norms; due to their Statist origins which endow them an enforceable element through State power (i.e. State-sanctions),therefore; supplying them with the requisite widely-recognized and compulsive authority over the society(territory) they govern. It is this particular component that makes Laws, “real” in the political and sociological sense; whereas unlike ordinary rules, customs and norms, they are binding and must be accepted and acknowledged rather than freely ignored. It is also this component that gives the it the ability to shape and create firm societal structures and curb sociological, political and economical development(particularly fitting for the political agendas of the State). Aside from this authority, in their attributes it is said that they are clear and certain; often codified in writing therefore realistically allowing unambiguous and wide-societal enforcement, reliance and usage. Collectively, Laws are connected to one another to form complex but holistic “legal systems”, which generally pursue overarching teleological ideals befitting the nature and the objectives of the State(e.g. for a Democratic/Liberal/ Capitalist State, there would be laws on civil-liberties, security, political-liberties, private- property, etc. ). This legal system is not only pervasive and domineering, as a result of it being the direct off-spring of State, but it is entirely legitimate and justified by the Democratic Process. Without any exaggeration, it is the “mandate” of the constituents in democratic theory (or/and the “general will” of the collective in social-contract theory, if one had inclinations against ‘democracy’) that has allowed for the creation of such commanding laws by the State. This is indeed, an important point, for otherwise: “why does the State have a monopoly of power?” equally “why do we allow it to have such a monopoly?”.
It is through these established thoughts that the Lex Mercatoria in its conception as an alternative, autonomous, independent, self-existing, self-enforcing, and self-creating legal system begins to baffle. For if, the Lex Mercatoria is accepted truly as what it is professed to be, apparently irresolvable contradictions would begin to arise that would not only threaten the foundations of our established understandings of the nature and the justification for Law, but the very structures of our society which is based on such understandings. Faced with the perils of such acknowledgements, the official riposte has (perhaps, fortunate to some) been to outrightly deny the Lex Mercatoria as an existing “legal system”. Negating the Lex Mercatoria in this conception, in fact captures a great part of the jurisprudence on the subject itself and constitutes the other half of the great rift mentioned earlier.
The arguments themselves within this domain are compelling but incredibly eclectic; however an attempt will be made to place it here in correspondence to what we have already discussed. Most prominently, it has been argued that the rules and principles of the Lex Mercatoria are not law because they lack the constituent components of Law.
Namely, (1) since the rules and principles are not the direct creation of the State they therefore lack the crucial connection to State-sanctions and State-enforcement mechanisms, which would imply that there is no apparent prohibition from their violation. Stemming from this, it would therefore be difficult to argue that they are truly binding, commanding and authoritative, which is the distinctive characteristic of Law. This feature makes it impossible to distinguish it from mere social rules, norms, conventions and customs. The same is true with the ‘rules and principles’ enforced by International Arbitrators, and similarly the Arbitration Rulings themselves; the International Arbitrators do not possess any monopoly or warrant over force/sanctions(whereas, comparatively national judiciaries have the monopoly over legal enforcement through State powers constitutionally endowed to them). The result being that legal existence and enforcement of these rules and principles are illusory and it would be a farce to classify them as real applicable Laws.
(2) Secondly, the rules and principles that constitute the Lex Mercatoria lack certainty and consistency to make them ‘realistic’ Laws. Certain rules and principles are so vague, that they have been claimed to be entirely meaningless. They are open to ample interpretations by arbitrators, as they often are in Arbitration cases. Additionally, the exact substantive scope of rules and principles that make up the Lex Mercatoria are also unclear; certain authors have claimed there are 21, others claim they are 72. Clarity is important for without which, how is a clear legal presence to be felt; how can one satisfactorily rely on legal principles in a preemptory sense?
(3) Thirdly, it is arguable whether the Lex Mercatoria can be said to be a ‘Legal System’. Generally recognised Legal Systems possess very defined, immutable and interconnected structures. Specifically, they consist of clear and perspicuous Laws(contention in point 2), officially prescribed enforcement mechanisms, set procedures and responsibilities fixed over many organs constituted to enforce and apply the laws. There are evident, functional expositions, and separations of law, legal enforcement responsibilities, powers and duties of organs. Though ‘clearly’ separate the organs and laws have all been intimately designed in consideration with one another, to allow for the proper collaboration with each other to achieve the ideals of the system, upon which it was established(i.e. democratic/secure state; rule of law; etc). Due to these interminable structures(i.e. fixed and clear), and their perpetual inner-coordination with one another to achieve certain values; they depict themselves in as operating in a perennial system; rather than a transient mass of rules. Similar to the argument made on Laws, certainty and clarity is an important factor for the system as a whole. True legal systems, must be structurally certain and clear; therefore they can not only operate correctly(in a procedurally sense)11 in the application and enforcement of laws; but can also easily be observed, acknowledged and utilized by others. Generally, this spectacular calibration of intricate individual components to form such an interconnected system can only be achieved by constitutional or political design.
On the other hand, though there are apparently coherent-structures when engaged in ‘commercial private governance’ that together resemble a form of a ‘legal system’ , there is an observably a lack of actual structural integrity and certainty akin to those clearly found in national Legal Systems. Seemingly there are no set laws(2), clear enforcement mechanisms(as there is no prefixed arbitrator one must resort to) procedures(the procedures have varied on a case by case as they are ex aequo et bono) and structural rules(as those found in constitutions). All of which have made some to claim the Lex Mercatoria is no more an arbitrarily enforced “mass of rules”.
(4) There then arises, problems of legitimacy. The legal rules, principles and ultimately systems ultimately are fundamentally commanding and overbearing; they may restrict autonomy, therefore, how are they to be justified? Democratic and liberal theories of law, have argued from the basis of “democratic mandate”. Basically, the State is the product of the electoral will of all its constituents and therefore the State commands legitimate power; to pursue legislative activity reflecting this will. Presuming that the Lex Mercatoria is indeed an independent system, the rhetorical question posed is ‘where does its’ legitimacy come from?’
(5) Finally, legal commentators have also questioned the alleged independence and autonomy of the Lex Mercatoria.
Altogether the views refute the existence of the Lex Mercatoria13 as ‘an autonomous system of law’. The arguments are very well-reasoned however they deserve critical considerations on their own.
Each will now be analyzed in turn.
(1) Firstly, it is true that the rules and principles of the Lex Mercatoria do not originate from State-conception and therefore they lack State-sanctions. However, mysteriously, it is undeniable that most Arbitration decisions enforcing these transnational rules and principles have been accepted. In fact, cases of non-compliance are so rare they are generally unheard of. This is very puzzling, when viewed from the conventional perspective, given that there is no ‘recognized’ deterrence from noncompliance(i.e. a trader persisting with violation even after the arbitration). A stringent adherence to orthodoxy here would leave the obscurity disappointedly unsolved. However, when we critically consider the matter, an adequate explanation may be offered. To begin with, we must remind ourselves that the contracts in question are formulated by both parties because of their ‘interests’ in international-commerce. In doing so, they have a plethora of choices when it comes to selecting laws governing their contract; they are free to select domestic laws in governing their contracts just as they are equally free to select ‘transnational law’. The fact that they may select the latter (in instances when they do), indicate that they have already preferentially deferred to respecting the weight of such rules and their application. Where they refuse, their refusal of compliance would mean a refusal to acknowledge a fundamental aspect of which their contract was formulated on. This could mean severe expectation-violations, which could practically damage the relations and credibility between the party. It would thus not be in the ‘interests’ of traders do so. This feature is amplified to the multitude, given that the rules and principles of the Lex Mercatoria have been derived from the realities of international commerce and embraced and practiced by traders, as such, for centuries and to date. In the similar vein, International Arbitration has also established itself as the customary and most suited dispute-resolution method. Without any serious thought it is easy to imagine that such violations would seriously damage the reputation of the violator and place the violator at serious risk of being ostracised by the international commercial community(even more so when a lot of the decisions of arbitration is published). To view it from this light, it is arguable whether it is entirely correct to claim that these rules and principles (and their application) lack sanctions.Rather, in practice in would seem they are enforced by various practical sanctions featuring most prominently with ostracism. The rules and principles here are thus akin to Law and may be rightly called so, as they command a similary Authorative, Binding and Compelling component, though achieved through different type of sanctions.
(2)The uncertainty and consistency is a fair point. However, the question to ask here, is to what extent does certainty and consistency constitute the defining characteristics of law. Put in another way: ‘do legal rules and principles need to be certain and consistent such that they can be recognized as Law?’ One might argue realistically, it would be hard to utilize legal rules and principles if they are not of such nature. Nevertheless, it seems to be overlooked that they are in fact a lot of similarities between the nature of the transnational rules and principles and domestic legal rules and principles. Take for example, the English jurisdiction. Though it is fruitless to argue on a formal level that Statute is unclear or inconsistent; the practices of reality paint another picture. The meaning and the scope of certain rules and principles found Statutes have always been ambiguous in that they constantly change. Judges are often interpreting and applying statutory law beyond their ordinary words; for example, the reinterpretation of the word ‘assault’14 which was understood in the classical sense as involving a physical component to one including a psychic-component. The statutory interpretation, is justified on the basis that even statutes may be unclear but more importantly, their uncertainty and multiplicity of meanings are also significantly justified on the fact, law should adapt to unforeseen circumstances. This is a realistic acknowledgement that legal flexibility is not compatible with legal certainty; whereas legal certainty is not always compatible(in a substantive sense) with reality. Not just restricted to statutes, Common Law, the defining legal system of the United Kingdom(and most jurisdictions), is always changing and modified to meet changing realities. Even the existence of Equity itself is entirely similar to the Lex Mercatoria, in that it is largely formless, with many guiding maxims being interpreted differently in application in different cases to achieve a truly fair outcome. What this demonstrates is that certainty and consistency, do not define valid Law and that valid Law may diminish its certainty and consistency in order to be adaptable to the needs of reality. In this sense, we may not only potentially see the Lex Mercatoria as valid Law, but begin to understand why it is necessarily ‘formless’.
(3) The allegations that the Lex Mercatoria lack the requisite structural integrity of national legal systems is entirely verifiable. If we were to compare the “Lex Mercatoria”(as described in our definition) and national legal systems, the former would be bereft of many of the structural characteristics of the latter. Indeed, there is no transnational constitution that structurally defines the Lex Mercatoria. Essentially the problem, is that any transnational constitutions and/ or large scale legal-systematizations(in natures similar to that found in domestic legal systems) cannot transpire in a global or international context(particularly if you increase the scope of this system). This is due to the fact that there are limitations that exist in the geographical(i.e. territorial size, etc), social (i.e. cultural, etc), political(i.e. state-sovereignty, ideology, etc) sense.
To overcome most of these limitations, would mean overcoming not only the practical difficulties(such as the geographical one), but also overcoming important ideas such as ‘State- Sovereignty‘ and also imposing on the autonomy on a large number of individuals/constituents such that they are willing to be governed under such a system(which is inevitable if one were to incorporate them into a transnational legal system). It would mean the deposition of individual/certain States and the subsumption of constituents of various states under a global transnational legal system; there would necessarily be substantial political transformations. This inevitability can be seen with the European Union project. In accordance to many commentators, the European Union resembles a Super-State. In its legal aspects, to our relevance, it possesses many characteristics that fit the conventional ‘positivistic‘ criteria of being a true legal system; however the creation of this mega-entity was not without significant political transformations and momentum.
That is not to say that the existence of the Lex Mercatoria is not feasible or partial; but rather the existence of the Lex Mercatoria in a “positivistic” sense(i.e. in ways similar to the national legal system) is impossible. It is the differentiations between the Lex Mercatoria and national-legal systems that allow it to successfully avoid these difficulties and yet exist in the international realm. The fact that it is not ‘officially’ or ‘globally’ codified in the positivistic sense, allows it exist without threatening the political autonomy of States, whilst the fact that it is voluntary and emphasizes the principles of “party-autonomy” allows it to respect individual autonomy, without making extraordinary political claims. It is a system, nevertheless, as a result of its teleological quality. To put it in understandable terms, though the rules, principles, enforcement mechanisms and procedures which make up the Lex Mercatoria; may differ in nature and in origin when viewed in isolation; they share the similarity of being largely conceived for the governing of international commerce(practically and efficiently) and thus they naturally act in pursuit of this objective.(e.g. Lex Mercatoria rules and principles were expounded as ‘better’ rules and principles for conducting/regulating international trade/commerce, International Arbitration arose as a more ‘appropriate‘ form of dispute resolution that reflected the realities of international business, etc.) It is this teleological quality of each components that ensures that they eventually/naturally coordinate and connect with each other in order to achieve their constituting objectives.
(4) The contention here is misguided and thus the considerations here are fairly short. Though the Lex Mercatoria is not a product of democracy or governmental process, it does not lack ‘legitimacy’. Since the Lex Mercatoria only governs the realm of international commerce, it is entirely legitimate in its form, given that it has been derived from centuries of international commercial practice. Furthermore, the Lex Mercatoria emphasises and operates on the principle of ‘party autonomy’, its’ voluntary aspect testifies against any claims of arbitrariness, as one could potentially avoid the Lex Mercatoria by contracting out, to municipal laws.
(5) It is undoubted that the Lex Mercatoria is autonomous and independent. The system, has not only created rules and principles (without government intervention) but it is also self- governed them through mechanisms and procedures that are truly transnational(to contextualise it simply, non-governmental rules; enforced by non-governmental bodies). The constituting bodies, are not derived from any states but rather from business organizations(e.g. the ICC).
CONCLUSION
Ultimately, the matter can be summed up in the following way; the problem seems to be that we are trying to comprehend and define a phenomenon that has not only transcended national boundaries but also our very own sociological, political and legal understandings. The attempts made by many naturally was to try capture this phenomenon through conventional understanding. However this is indeed a mistake. There have been many developments in society that have surpassed conventional understanding. The rise of Globalisation has led to a lost of sovereignty in the traditional sense and the prominence of legal pluralism, which has contextually introduced alternative actors(for example the European Union). The understanding of the new phenomenon requires that we not only study them carefully but also critically challenge our own orthodox understandings. In the end, a critical consideration corroborates the existence of a phenomenon that we may rightly refer to as the Lex Mercatoria in its original conception.
