The Law Merchant-Redux

art gemmell

Abstract

The Lex Mercatoria- Redux Arthur J. Gemmell and Autumn Talbott* ABSTRACT

The lex mercatoria developed as merchant-made, private law. Unlike other bodies of law, the lex mercatoria was not born of statutory or “natural” law but from practical, day-to-day commercial usage. In fact, medieval commercial activities propagated the “most favorable trading practices and customs of the various foreign markets within which [merchants] did business.”

What evolved in the Middle Ages out of necessity stands today as a sometimes controversial testimony to the power of self-regulation through a specialized and practical body of law: the lex mercatoria that has for centuries governed international merchant and commercial arbitrations.

As governments increased regulation of commercial dealings, domestic codes began to supplement, and then displace, this tradition of self-regulation by merchant-made law.

We begin our discussion of the law merchant in Part I by briefly describing the historical significance and development of lex mercatoria and its place in modern commercial legal systems. Essentially, we establish the antecedental bona fides of the Law Merchant. Arbitration’s emphasis on party autonomy and efficient dispute settlement has led most international commercial agreements to provide for mandatory arbitration in the event of a dispute under the contract. In these arbitration clauses, parties demonstrate their autonomy by choosing the law that governs their contract, both procedurally and substantively. In fact, the possibility of adjudicating on the basis of rules from several origins, as opposed to provisions from a single legal system, is one of the unique features of arbitral adjudication.

We argue in the second part of this article that where sophisticated parties have agreed to incorporate the lex mercatoria, in any form, into the law governing their dispute, states should respect and enforce the resulting arbitral awards. While states always have the option of relying on vague references to public policy to set aside the award or to refuse enforcement, the enforcement of a lex mercatoria award rooted in the history of international commercial arbitration is the better public policy—one that supports enforcement, not avoidance. While the lex mercatoria historically impacted international merchant and commercial arbitrations, governments, in time, increased their regulation of commercial dealings. As a result, domestic codes began to supplement, and then displace, the tradition of self-regulation by merchant-made law.

We posit in part two that it may be time for arbitral professionals, courts, and parties to usher in a renaissance of the lex mercatoria.