The lex mercatoria is a unique set of rules for
international commercial law, independent of national laws and
directly arising out of the usages and practices of
international commerce.
The lex mercatoria has been created by, and for,
the participants in international trade and is applied by
arbitrators to settle international trade disputes. The binding
nature of lex mercatoria does not stem from the
sovereign power of a state, but from its recognition as an
independent set of rules by the commercial community and
sovereign states.
The lex mercatoria draws from usages developed in
international trade, standard clauses and contracts, uniform
laws, general principles of law (such as pacta sund
servanda, rebus sic stantibus and the deduction from
compensation in cases of mutual fault), international
instruments and arbitral awards (the principles of good faith,
the obligation to mitigate losses, rebus sic stantibus
and pacta sund servanda are the general principles
that are most widely referred to in the ICC arbitral
awards).
The existence and impact of lex mercatoria is
accepted in contemporary international commercial law, while
modernised and revised national rules relating to international
commercial arbitration and the conflict of laws is helping to
increase the influence and application of the lex
mercatoria.
Party autonomy rules
All modern national arbitration laws and institutional
arbitration rules recognise party autonomy; parties are free to
determine the substantive law applicable to the merits of the
dispute to be resolved by arbitration.
It is accepted in the doctrine and in practice, that the
arbitrators may apply non-national substantive rules, such as
the lex mercatoria. The shift from a national
substantive law to the application of international commercial
law is heralded by the use of the expression "rules of law"
that can be found in modern arbitration laws and rules. This
provision allows the parties or the arbitrators to choose
non-national rules or the lex mercatoria.
According to Article 28(1) of the Uncitral Model Law on
International Commercial Arbitration: "The arbitral tribunal
shall decide the dispute in accordance with such rules of law
as are chosen by the parties as applicable to the substance of
the dispute."
According to Article 46(1) of the English Arbitration Act:
"The arbitral tribunal shall decide the dispute (a) in
accordance with the law chosen by the parties as applicable to
the substance of the dispute, or (b) if the parties so agree,
in accordance with such other considerations as are agreed by
them or determined by the tribunal."
The relevant provisions of procedural laws of the
Netherlands, France, Germany, Russia and Italy are in line with
the Uncitral Model Law.
According to Article 187(1) of the Swiss Private
International Law Act: "The arbitral tribunal shall decide
according to the rules of law chosen by the parties."
In Turkish law, according to Article 12/C of the
International Arbitration Act, the arbitrator or the arbitral
tribunal shall decide according to the provisions of the
contract between the parties and the "rules of law" that are
chosen by the parties as applicable law to the substance of the
dispute.
According to Article 17(1) of the ICC Arbitration Rules:
"The parties shall be free to agree upon the rules of law to be
applied by the Arbitral Tribunal to the merits of the
dispute."
According to Article 22.3 of the London Court of Arbitration
Rules: "The Arbitral Tribunal shall decide the parties' dispute
in accordance with the law(s) or rules of law chosen by the
parties as applicable to the merits of their dispute."
According to Article 24(1) of the Rules of the Arbitration
Institute of the Stockholm Chamber of Commerce: "The Arbitral
Tribunal shall decide the merits of the dispute on the basis of
the law or rules of law agreed by the parties."
In ICC arbitration, the arbitrators directly applied the
lex mercatoria in the cases where the parties have not
made any choice of law even in the seventies. However, the
lex mercatoria was first directly used following
agreement of the parties in a case from 1989 (numbered 5904).
The subject matter of the case was a serial purchase order
conducted by a distributor located in a developing country from
a European supplier.
Arbitrator's choice
The traditional method, the application of conflict rules of
the place of arbitration, has been left aside by modern
national arbitration laws.
Article VII of the European Convention on International
Commercial Arbitration provides for a freedom of conflict of
laws system in international commercial arbitration. According
to Article VII(1) of the European Convention: "Failing any
indication by the parties as to the applicable law, the
arbitrators shall apply the proper law under the rule of
conflict that the arbitrators deem applicable."
The approach of the European Convention has been adopted by
the Uncitral Model Law and followed by many arbitration laws,
including English and German laws.
According to Uncitral Model Law on International Commercial
Arbitration Article 28(2): "Failing any designation by the
parties, the arbitral tribunal shall apply the law determined
by the conflict of laws rules which it considers
applicable."
Some national arbitration laws authorise the arbitrators to
directly apply the rules they deem applicable without any
reference to conflict of laws rules. Swiss, French, Dutch and
Canadian laws can be given as examples.
Modern institutional arbitration rules accept the method of
direct determination of applicable substantive law. Direct
determination allows a tribunal to select the applicable
substantive law or rules relevant for the particular case
without reference to any conflict of laws rules.
According to Article 17(1) of the ICC Arbitration Rules: "In
the absence of any such agreement [by the parties], the
Arbitral Tribunal shall apply the rules of law which it
determines to be appropriate."
According to Article 22.3 of the London Court of Arbitration
Rules: "If and to the extent that the Arbitral Tribunal
determines that the parties have made no such choice, the
Arbitral Tribunal shall apply the law(s) or rules of law which
it considers appropriate."
According to Article 24(1) of the Rules of the Arbitration
Institute of the Stockholm Chamber of Commerce: "In the absence
of such an agreement [by the parties], the Arbitral Tribunal
shall apply the law or rules of law which it considers to be
most appropriate."
The application of non-national rules of law or the lex
mercatoria, in the absence of the choice of law by the
parties, is not yet accepted by some national arbitration
laws.
Pursuant to the dominant view, it is not fortuitous that the
Uncitral Model Law uses the term "law" instead of "rules of
law". The purpose of this wording is to ensure the application
of national laws by the arbitrators. There is a similar
distinction in some of the arbitration regulations.
According to Article 46(3) of the English Arbitration Act:
"If or to the extent that there is no such choice or agreement,
the tribunal shall apply the law determined by the conflict of
laws rules which it considers applicable."
According to Article 12/C of the Turkish International
Arbitration Act, in the absence of the choice of law by the
parties, the arbitrators shall decide according to the "law of
the country" with which the dispute is most closely connected
with.
On the other hand, there is no similar distinction in some
national arbitration laws. French, Dutch and Italian Law of
Procedure Acts and Swiss Private International Law Act provide
that the arbitrators may apply the appropriate "rules of law"
in the absence of the choice of law by the parties. The most
significant institutional arbitration rules also provide that
the arbitrators may apply the "rules of law" as applicable
law.
Using lex mercatoria
Indeed, in international commercial arbitration there is no
need to localise legal issues, as many transactions and legal
relationships have contacts with several jurisdictions and are
truly international or de-nationalised. Thus, it is appropriate
for arbitrators to find some international or non-national
rules or practice appropriate to the question at hand rather
than apply a conventional national law. The most closely
connected law shall be the rules of law whose content is
appropriate to the needs of international commerce, that
resolves the validity of the contract between the parties, and
that recognise the legal concepts used by the parties in their
contracts, instead of necessarily having a geographical
connection to the dispute.
The restriction of application of non-national rules of law
or the lex mercatoria is not consistent with the
nature of commercial international arbitration. Such freedom to
apply non-national rules of law or the lex mercatoria
actually constitute one of the advantages of international
commercial arbitration along with its many other advantages
from the point of view of the international merchants.
Thus, the relevant provision of the Turkish International
Arbitration Act falls behind modern theories and is an
impediment to the progress of contemporary international
arbitration culture and practice in Turkey. The relevant
provision shall be revised in line with the modern views.
| Author biography |
Ercüment Erdem
Erdem & Erdem Law Office
Ercüment Erdem is the senior partner of the
firm. He specialises in commercial law (international
and national), energy law, project finance (including
BOO and BOT models), capital markets law, contracts,
corporate law, privatisation law, international
commercial arbitration, corporate finance, law of
obligations, private international law,
¦ndustrial property law, law of trade marks and
copyright, competition law, ¦nternational
leasing, mergers and acquisitions, and international
construction law.
He is also Professor of Commercial Law at
Galatasaray University Law School (Istanbul) and he
teaches law of negotiable instruments, corporate law,
competition law and international commercial law. He
speaks French, English and German.
Memberships: Istanbul Bar Association; ICC Institute
Council; ICC Incoterms Experts Group; ICC Turkish
National Committee Arbitration Council; Representative
of Turkey in ICC Commercial Law and Practice
Commission; member of several ICC task forces;
Association Henri Capitant des amis de la culture
juridique française; Banking and Commercial Law
Institute; Competition Law Association.
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