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The Operation of the Modern Lex Mercatoria: The Hierarchy of Norms

[Jan H. Dalhuisen is Professor at King’s College in London, the Miranda Chair of Transnational Financial Law at the Catholic University in Lisbon, and is Visiting Professor at UC Berkeley] Professor Dalhuisen is guest-blogging with us this week on the transnationalization of private law. Links to his other posts can be found under "Related Posts" below. It was submitted that the essence of the transnationalization of private law is the consideration of different sources of law. They may conflict. This would suggest a need for a hierarchy, a problem that also surfaces in foreign investment law. In the lex mercatoria we may further find (as in foreign investment law), however, that the law, in as far as we have it, is still insufficiently complete or underdeveloped at the transnational level.  When no clear transnational legal regime emerges, we are therefore still relegated to a domestic law as the default rule, in private law found on the basis of the ordinary conflict rules. To me that is fully acceptable and makes for a complete system for those who still think in those terms, but there are two observations to make. First, the room for the transnational sources will progressively expand and in international transactions the bias must be in their favour. Second, even where domestic law applies in international cases as the subsidiary or default rule, it becomes part of the transnational law or modern lex mercatoria and must fulfil its place therein.  In other words, if it does not make any sense or does not serve justified needs it will be adapted. It leads to the important conclusion that the application of English law in international cases is not the same as the application of English law in domestic cases. That then goes for all domestic laws. In truth and upon a more proper analysis (and perhaps unknown to themselves), this is the way international arbitrators now increasingly operate in finding the applicable law and it is at the heart of the modern notion of the lex mercatoria.  Arbitrators will apply fundamental principles first, then mandatory custom and practices, then mandatory treaty law to the extent existing, then mandatory general principles, then party autonomy, subsequently directory rules of custom, treaty law and general principles, and finally, if all fails, domestic private law.  A choice of a domestic law by the parties moves it up from the residual level or default level to the level of party autonomy but no higher and fundamental transnational principles, mandatory custom, treaty law and general principle still prevail over it.  Again this chosen local law would function in the transnational legal order and be adapted accordingly in its lex mercatoria.  A choice of a domestic law by the parties in international transactions covers therefore much less ground than people often think and operates differently as I explained in my contribution for the Liber Amicorum for Lord Bingham.

The Modern Lex Mercatoria and its Dynamism

[Jan H. Dalhuisen is Professor at King’s College in London, the Miranda Chair of Transnational Financial Law at the Catholic University in Lisbon, and is Visiting Professor at UC Berkeley] Professor Dalhuisen is guest-blogging with us this week on the transnationalization of private law. Links to his other posts can be found under "Related Posts" below. In my last post, I said that the modern transnational lex mercatoria is dynamic, does not depend on statutory or treaty law, is not statist and allows for immanent or informal law formation through the market place, therefore by the participants themselves.  That is foremost through custom and practice, in fact the normativity of all routine on which any society depends for its proper functioning. Party autonomy follows. Such a law is also built on other sources, foremost fundamental principles and its set of values, but also on general principles developed in commerce and finance in different legal systems. This has considerable consequences for our view as to how the modern law works in international commerce and finance. It is very different from the civil law codification model and its method of interpretation. I already said that in contract, good faith may thus acquire quite a different profile in business and consumer transactions. In the first it may extend protection, in the latter it may minimize it when the contractual road map and risk distribution requires a much more literal interpretation. But another key insight is that with these different participatory sources of law, the modern lex mercatoria is also likely to be dynamic and moves away from a static notion of contract and movable property law. Especially in duration contracts, it is clear e.g. that the moment of the conclusion of the contract, if it can at all be clearly determined, is not conclusive any longer of the rights and duties of the parties.  There are pre- and post-contractual rights and obligations which emerge all the time out of the behaviour and reasonable expectations of the parties. Thus conduct and reliance are here the key, not the formal mating dance of offer and acceptance. Will and intent acquire a much more objective meaning also. They are in fact often irrelevant and in any event in a corporate environment difficult to determine where the one who has the signing authority often knows little of the content, different departments are involved in the negotiation of different parts, and the text as whole may emanate from an outside law firm.  Object and purpose are then more relevant and perhaps easier to handle as more objective notions.  Cooperation and fiduciary duties, especially in situations of dependency, may further be implied.  This is the world of modern contract theory at the heart of which there is a dynamic concept of contract and of the rights and obligations thereunder and a firm distinction as to the nature of the parties, especially between professionals or consumers. This dynamic contract model is quite different from what is mostly still taught under national law in national law schools, where we still pay tribute to offer and acceptance notions, a fixed moment as of which a contract is concluded and in contract interpretation to an exalted idea of the will, often in a psychological sense. This presents an atavistic model of contracting that is entirely out of date, even domestically. The newer model, at least in the professional sphere, is based on conduct and reliance, and on a substantial degree of risk acceptance beyond the contractual risk allocation unless the result becomes manifestly unreasonable which in business will not arise soon and would have to take into account the overall position of the complaining party and not merely the situation of advantage or disadvantage under the particular contract.

Is “International Law” the Same as “Foreign Law”?

The Telegraph commits one of my pet peeves in this headline and article on the Greek Debt Crisis: Greek talks with international-law debt holders hit impasse Despite earlier this year forcing most creditors to take losses of 75pc on the debt, Athens has still to deal with its bonds which were issued under international, as opposed to domestic, law. The Greek government said...

Weekday News Wrap: Tuesday, April 3, 2012

On the 30th anniversary of the Falklands Islands/Las Malvinas invasion, Argentine President Cristina Fernandez de Kirchner decried the existence of a "colonialist enclave" in the 21st century as an injustice. At a remembrance ceremony in the UK, UK Prime Minister David Cameron referred to the Islanders' right of self-determination. According to Kofi Annan, Syria has agreed to a ceasefire starting on...

International Organizations Becoming More Popular As Alternate Fora for U.S. Civil Rights Groups?

I sense there is a trend of domestically-focused US civil rights and labor groups seeking to make their case in international fora. 1) CCR announces that the Inter-American Commission of Human Rights has accepted a case from a Guantanamo detainee. 2) Labor and civil rights groups have filed a complaint in the International Labour Organisation challenging Alabama's immigration law. 3) The NAACP has...

Does the Libya Precedent Block a Syria Intervention?

Tod Lindberg of the Weekly Standard worries that the "pristine" legality of the Libya intervention (under international law, at least), is preventing the U.S. from taking similar actions again Syria. As matters stand, intervention in Syria would be anything but a "model." The real question for the Obama administration, however, is whether Libya has set a standard for intervention so pristine...

The Sources of the Modern Transnational Lex Mercatoria

[Jan H. Dalhuisen is Professor at King’s College in London, the Miranda Chair of Transnational Financial Law at the Catholic University in Lisbon, and is Visiting Professor at UC Berkeley] Professor Dalhuisen is guest-blogging with us this week on the transnationalization of private law. Links to his other posts can be found under "Related Posts" below. In my last post I said something about the need for and re-emergence of transnational private law in international commerce and finance. This law is immanent in principle, created by the international market place and its participants itself, where necessary supported by treaty law (like the Vienna Convention on the International Sale of Goods), and in practice formed and operating much like public international law with its different sources, as may be shown particularly in its foreign investment law branch. That is the modern lex mercatoria. It is very different therefore from the law of the codification, but similar to what prevailed earlier. It is now in its formation and operation in fact closer to the common law which is not statist per se nor systematic and academic either and less averse to other sources of law. It is more pragmatic and moves from case to case on the basis of practical needs, even if there is now also much legislation and sometimes even a kind of code, especially the uniform commercial code or UCC in the US. Whatever its name, the UCC is not, however, a codification in the European sense. It does not monopolise the field and does not push out other sources of law. Rather in its Section 1-103, the UCC makes it very clear that it promotes not only custom but also the common law, equity and the law merchant besides it. In England, the Sale of Goods Act until its reformulation in 1979 also still referred to the law merchant, even if in England its deletion in 1979 and also the narrowing approach to custom especially if international, shows that commercial law has become much more nationalistic, also in England, unwisely so in my view, but not quite as much as on the European Continent.

What do we mean by the Transnationalization of Private Law?

[Jan H. Dalhuisen is Professor at King’s College in London, the Miranda Chair of Transnational Financial Law at the Catholic University in Lisbon, and is Visiting Professor at UC Berkeley] Professor Dalhuisen is guest-blogging with us this week on the transnationalization of private law. Links to his other posts can be found under "Related Posts" below. Opinio Juris has not so far dealt with matters of private law and its transnationalization, harmonization or unification, especially important at the operational level in international commerce and finance.  If it is true that the international flows in goods, services and money now far exceed the GDP of even the largest countries, then the question must be asked why it is that in the orthodox view, these international flows must still be controlled and covered by a national law, which is then found under the canons of what is called private international law or conflicts of law. It is not logical but it is the consequence of the 19^th Century view that all law was the product of a national culture and that there was no law beyond it. Even common law countries fell for this. In civil law countries this led to the further idea that this law, even private law, would issue from government, hence the codifications. It allowed at the same time an academic systematic approach to dominate and led on the whole to a severe form of legal formalism based on a systemic interpretation of these texts which were considered to be complete by themselves and covering all eventualities. In particular, codification of this nature was suspicious of and left not much room for other sources of law, like custom and practices, general principles (except if underlying these codes) or even party autonomy.  They could only operate by license of these codes. Even fundamental principle or newly established social values were no source of law except when these codes referred to them or expressed them. There were no values or rationality beyond them. This also captured commerce, even when international, and it had to conform to these national legal systems. It followed that international transactions were legally pulled apart.

Introducing Guest-Blogger Jan Dalhuisen

We are pleased and honored this week to host Professor Jan Dalhuisen, Professor of Law at King's College London, a visiting professor at the University of California Berkeley, and the Miranda Chair at Catholic University Lisbon.  Professor Dalhuisen will share some thoughts on a topic we too often ignore here at Opinio Juris: the transnationalization of private law. Professor Dalhuisen graduated...

Weekday News Wrap: Monday, April 2, 2012

A New Hampshire woman will be retried for immigration fraud. She allegedly lied about her involvement in the Rwandan genocide when applying for asylum in the US. US authorities deported a former leader of the Liberian Peace Council who had been living in Rochester since 2006 to the West African country. He is suspected of human rights abuses and war crimes,...