Centro di studi e ricerchedi diritto comparato e straniero

diretto da M.J. Bonell

SAGGI, CONFERENZE E SEMINARI

42

Roma 2001

KLAUS PETER BERGER

Transnational Commercial Law

in the Age of Globalization

1

INTRODUCTION

Forty years ago, Clive Schmitthoff1, René David2, Berthold Goldman3

and his pupils, Philip Fouchard4 and Philip Kahn5 rediscovered the new lexmercatoria or law merchant. Since then, the theory of international busi-ness law is divided into two camps6. The conflictualists accuse the doctrineof the transnationalization of commercial law as being nothing more than a“mere sociological phenomenon”, a “trip into legal weightlessness”7, a“legal utopia”8 or simply “palm tree justice”9. In their view, every trans-border commercial transaction has its “seat” or center of gravity in a do-mestic legal system to be determined by the applicable conflict of lawsrules. The transnationalists reject this view. They maintain that there is a“third” legal system besides domestic laws and public international law. Intheir view, the application of transnational law to cross-border commercialtransactions has two major advantages. First, it avoids the uncertainties oftraditional conflict of laws methodology. Secondly, the new law merchant is

1 Schmitthoff, in: Schmitthoff (ed.), The Sources of the Law of InternationalTrade, 1964, at 3, 5.

2 David, in: UNIDROIT (ed.), New Directions in International Trade Law, 1977,at 5 et seq.

3 Goldman, Archives de philosophie du droit 1964, at 177 et seq.4 Fouchard , L’Arbitrage Commercial International, 1965, at 423 et seq.5 Kahn, La Vente commerciale internationale, 1964, at 365 et seq.6 See Juenger, Louisiana Law Review 2000, at 1133; Molineaux, J. Int’l.Arb.

2000, No. 1, at 147.7 Heini, Festschrift Moser, 1986, at 67, 72, note 22.8 Steindorff, in: UNIDROIT (ed.), New Directions for International Trade Laws,

1977, at 87, 100.9 F.A. Mann, in: Carbonneau (ed.), Lex Mercatoria and Arbitration, at XX.

2

better able to cope with the complexities and specificities of and the needfor a flexible and adaptable legal framework for modern commercial trans-actions10. René David has exposed the transnationalists’ vision as early as1969:

“[T]he lawyer’s idea which aspires to submit internationaltrade, in every case, to one or more national systems of law is noth-ing but bluff. The practical men have largely freed themselves from it,by means of standard contracts and arbitration, and states will beabandoning neither sovereignty nor prerogatives, if they open theireyes to reality and lend themselves to the reconstruction of interna-tional [business] law”11.

Today, David’s statement is more up to date than ever. The reason isthe increasing globalization of the world economy, i.e. the integration ofhitherto separate national markets. International businessmen no longerconclude their contracts across domestic borders. Instead, they act in aglobal market place in which they take care of their own affairs irrespectiveof the applicable domestic law. The “new economy” as a new form ofbusiness organization necessarily influences the law creation process in in-ternational business. The revolution of information technology and the rapiddevelopment of e-commerce allows for new and integrated ways of busi-ness communication. This has caused the phenomenon of “time compres-sion”, a fundamental change of our perceptions and expectations regardingof what are, and are not, acceptable delays12. “Cyberspace”, by its verynature, is at odds with the traditional conception of the world as legal terri-tories surrounded by fixed borders, and suggests the usefulness of a lawthat knows no boundaries13. In fact, some say that globalization means theend of geography.

10 Gaillard , in: Berger (ed.), The Practice of Transnational Law, 2001, at 53, 63.11 David, in: Int’l. Encyclopedia of Comparative Law, 1969, Ch. 5, at 212.12 See Fortier, LCIA News, February 2001, at 5, 6.13 Juenger, supra note 6, at 1140.

3

Against this background of dramatic change in theory and practice,the following remarks are intended to provide an account of the significancethat the doctrine of transnational commercial law has achieved today. Thiswill involve three different angles: the socio-economic framework of con-temporary international business (I.), the changing paradigms of legal meth-odology (II.) and the transnationalization of legal practice (III.).

I. THE SOCIO-ECONOMIC LEVEL

1. The Evolution of a ‘Global Market Place’

In the modern globalized business environment businessmen seek toreduce transaction costs and to increase economic efficiency. The transac-tion costs involved in the application of domestic laws to transnationalcommercial transactions have always been regarded as hampering the de-velopment towards globalized markets. The application of foreign law isregarded as the “globalization trap”, the devision of the world into differentlegal systems can be regarded as a non-tariff trade barrier. The fathers ofthe lex mercatoria doctrine have always emphasized that economic factors -and above all the strive for enhanced productivity, for rationalization ofproduction and for the reduction of transaction costs as well as the devel-opment from domestic and regional to world markets that goes along withthese developments - have a significant impact on the evolution of a trans-national system of law14. The dramatic economic transformations of theworld economy that have taken place and are taking place today at anenormous pace relate directly to the social and economic processes ‘at theperiphery’ of the legal process which serve as the laboratory for the crea-tion of transnational legal structures.

What are the economic factors and legal developments which shouldbe taken into account to evaluate the current climate for the transnationali-

14 Goldstajn , J.Bus.L. 1961, at 12, 13; Kahn, supra note 5, at 365.

4

zation of commercial law?

Among the economic and geo-political factors which influence thetheory of the lex mercatoria one should mention:

- the disappearance of the cold war and of the north-south conflict;- the progress of European integration and the creation of a Single Euro-

pean Market;- the dramatic increase of truly Transnational Corporations (TNCs)

through Mega-Mergers;- the changing climate of global corporate culture (“corporate govern-

ance”) which follows from the activities of TNCs;- the revolution of global communication technology;- the rise in the use of internet and EDI/EDIFACT;- the massive increase in global financial flows;- the creation of ‘global financial and capital markets’.

These geo-political and economic changes have prompted a series oflegal developments which are directly relevant for the transnationalization ofcommercial law:

- the victory of the doctrine of party autonomy;- the realization that in many cases, the technicalities of domestic legal

rules do not fit for international trade;- the privatization or ‘informal nature’ of lawmaking both in the field of

private law and public international law;- the increased significance of non-governmental organizations (NGOs);- the success of CISG and other international uniform law instruments;- the decreasing significance of private international law;- the emphasis on fairness and reasonableness in international contract

law;- the acceptance of comparative law as an independent legal science;- the ‘gradual convergence’ of civil and common law;- the growth of a modern European ius commune and the development

5

towards a ‘European Civil Code’;- the transnationalization of areas which have so far been reserved for

domestic legislatures such as antitrust and bankruptcy law;- the extreme growth in the use of arbitration and alternative dispute reso-

lution (ADR) mechanisms in international trade;- the equation of arbitration and state courts as genuine adjudication pro-

cedures and the emergence of a genuine arbitral case law15.

All of these factors have a basic common denominator: the erosionand irrelevance of national boundaries in markets which can truly be de-scribed as global or “transnational” and the decreasing significance of state-sovereignty for rule making and rule enforcement.

2. The Interdisciplinary Aspects of Globalization

Globalization is a hybrid and complex process. The legal effectswhich it creates cannot be explained with a single factual or legal argumentsuch as the proliferation of general contract conditions or the normativevalue of trade usages. In view of the dramatic changes of the economic andgeo-political conditions it requires an interdisciplinary approach16 whichtakes into account the research of all those sciences which deal with thechange of paradigm in international business.

Political scientists regard globalization as the reason for the decline ofthe “Westphalian” model of international relations which was based on thesovereignty of states17. This corresponds to a new and progressive view ofpublic international law as a “truly transnational law” of global or“supraterritorial” governance which no longer serves to coordinate the rela-tions between individual states but is shaped and developed by the activities

15 See Berger, in: Berger (ed.), The Practice of Transnational Law, 2001, at 1, 15et seq.

16 See Berger, The Creeping Codification of the Lex Mercatoria, 1999, at 231.17 von Bredow, in: Lutz (ed.), Globalisierung und nationale Souveränität,

Festschrift Wilfried Röhrich, 2000, at 159, 161 et seq.

6

of non-governmental organizations (NGOs) and private entities such asmultinational corporations18.

National economists have long since observed the development of a“private civil society” in which the states adhere to the principle of“subsidiarity” and leave the regulation of daily affairs to their citizens andintervene only if and to the extent that private self-regulation fails19. In thecontext of international business, the doctrine of “New International Eco-nomics of International Transactions” (NIIT) has been developed. It takesa transaction-oriented approach to international business and deals with theconstitutional uncertainties resulting from the territorial limitations of law-making and law enforcement and the problems (coordination of economicbehavior, increase of transaction costs) arising out of this phenomenon forthe property rights exchanged in international trade20. As a consequence ofthis “law and economics”-approach to decentralized law-making21, theeffects of private ordering for the creation of norms by decentralized socie-tal self-organizations are verified by application of game theory and com-puter modeling techniques22.

Finally, sociologists regard the decentralized law creation through thesocial group of international businessmen and their institutions (ubi com-mercium, ibi ius) as an example of “reflexive law”, i.e. a law creation pro-cess that reacts to the facts and developments of real life instead of impos-

18 See Hobe, Archiv des Völkerrechts 1999, at 253, 278 et seq. (public interna-tional law as a „transnational law of globalization“).

19 See generally Böhm, in: Mestmäcker (ed.), Freiheit und Ordnung in derMarktwirtschaft, 1980, at 105 et seq.

20See Schmidtchen/Schmidt-Trenz, Jahrb. Neue Politische Ökonomie 1990, at 3et seq.

21 See Cooter, U.Pa.L.Rev. 1996, at 1643 et seq.; Bernstein, U.Pa.L.Rev. 1996,at 1765 et seq.

22 See for a fascinating ‘in silico’ approach to norm making Picker,Univ.Chic.L.Rev. 1997, at 1225 et seq.

7

ing on society how life should be23.

In all disciplines just mentioned, research is focussed on the sameproblem: the transfer of rule making powers and organization processesfrom the state sovereign to private groups, entities, individuals or non-governmental institutions and the “de-formalization” of the norm-creationprocess that goes along with it.

II. THE METHODOLOGICAL LEVEL

The developments just described have a significant impact on legalmethodology. These interdependencies between the process of increasingglobalization of the world economy and legal methodology are frequentlyneglected and underestimated. However, they are of paramount significancefor the theory of transnational commercial law. As an independent legalsystem, it requires a sound methodical basis. An isolated layer of transna-tional rules and principles without a sound methodical underpinning wouldmean the death of the lex mercatoria. It is the method which paves the wayto the creation of substantive norms and not vice versa24.

In the area of transnational commercial law, the change of legalmethodology has taken place in two interrelated steps: First, the notion ofstate sovereignty has lost its prominent place within the traditional theory oflegal sources (1.). As a consequence of this, the contractual consensus hasassumed the role of a source of law, not only for the parties who have con-cluded the contract but for the business community as a whole (2.).

23 Teubner, Rechtshistorisches Journal 1996, at 255; Teubner, in: Teubner(ed.), Global Law Without

a State, 1997, at 5 et seq.24 See for evolving modern European ius commune Berger, ZEuP 2001, at 4,

29; see also for public international law Slaughter/Ratner, Am.J.Int’l.L. 1999, at 410(„the method is the message“).

8

1. The Decreasing Significance of State Sovereignty in the TraditionalTheory of Legal Sources

The states’ loss of their formerly dominant position in internationalpolicy- and rule-making which goes along with this process, the decreasedsignificance of sovereignty and the freedom of the parties in internationalcontract law have caused a reconsideration of the traditional theory of legalsources which has ‘moved beyond yesteryear’s narrow-minded positiv-ism’25. The traditional theory of legal sources was centered around the no-tion of sovereignty:

“Only those rules imposed by society deserve the name oflaw which have behind them the force of the law or ... the force ofthe sovereign state, meaning that only those rules adopt the quality oflegal norms that have been vested with this effect by the sovereignstate or that the state is the only source of the law”26.

Clive Schmitthoff has rightly stated in the early 1960s that moderninternational trade law, when compared with the medieval lex mercatoria,has one great drawback: the modern concept of the nation state whichoriginated a legal order of numerous municipal systems27. Today, the picturehas changed. A non-positivistic notion of the law is beginning to emerge28.The law has to take account of the complexities of society and the dramati-cally changing socio-economic framework of international business elabo-rated above. In view of these developments, it is not the public reasonrepresented by the state or by inter-governmental organizations alone butalso the power for self-regulation and coordination of the individual and of

25 Juenger, in: Carbonneau (ed.), Lex Mercatoria and Arbitration, 2nd ed. 1997,at 265, 276.

26Jhering, Der Zweck im Recht, Vol. 1, 6th-8th ed. 1923, at 249 (translation bythe author).

27 Schmitthoff, supra note 1, at 37.28 Canaris, in: Basedow (ed.), Europäische Vertragsrechtsvereinheitlichung

und deutsches Recht, 2000, at 5, 10 et seq.

9

private organizations and federations which justifies normative force. Apluralism of legal sources is developing which is based on the realizationthat society’s ability for self-organization and coordination is more than amere factual pattern without independent legal significance. Today, it as-sumes a normative quality of its own.

2. The Contract as the Source of Transnational Commercial Law

Focussing legal theory on self-regulation and self-organization ratherthan on state-decreed norms and statutes results in emphasizing the role ofthe contract as a source of law not only for the parties who have concludedit but for the business community as a whole.

a. The Significance of Private Contracting

This lawmaking power is based on the liberty of private contractingwhich constitutes the most fundamental rule of any legal system:

“C’est...une règle fondamentale du droit reconnue par tousles peuples que le consentement réciproque de deux sujets de droitsuffit à créer, à transformer ou à éteindre un rapport juridique. Cetéchange de volontés, c’est le contrat. Toute liberté est, en principereconnue aux hommes pour contracter, et leur volonté est diteautonome en ce qu’elle crée la règle”29.

In participating in the contractual consensus (‘consensus ad idem’),each party expresses the confidence that its counterpart will comply withthe terms and conditions of the contract30. Thus, in international business,the contract becomes the central means to implement the will of the partiesin practice because, in the absence of any need to ensure consumer protec-tion, international trade and commerce constitutes an ideal climate for the

29 See Ripert, Rec.Cours 1933-II, at 569, 588.30 Cf. Ripert, id., at 589.

10

free development of contractual structures31.

The realization of this eminent force of the contractual consensusgoes back to Grotius and Pufendorf, who realized that the keeping of one’sword is in harmony with the social nature of men and the principle of goodfaith32. Through these authors, this realization then penetrated into classicalcontract law doctrine33. The ancient lex mercatoria of the Middle Ageswas thus built on the faith in a given word, thereby allowing the actionabilityof pacta nuda ‘in curia mercatorum’34. At the fairs, seaports and markettowns of the Middle Ages, ‘purchase and sale of merchandise was continu-ally made’ and ‘the law merchant or law of the market was always followedthere continuously’35.

Today, this ancient contract practice forms the basis of the ‘promiseprinciple’ as the underlying idea of modern contract law36. The trust of oneside in the promise of the other (‘my word is my bond’) provides the es-sential basis for modern international trade transactions37. The legal obliga-tion that requires performance from every party to a contract is nothingother than the moral duty to respect one’s word38. Also, international busi-nessmen bear an increased responsibility for the conduct of their businessaffairs, resulting in a transnational principle which presumes their profes-

31 See Kahn, in: Bonell/Bonelli (eds.), Contratti Commerciali Internazionali EPrincipi UNIDROIT, 1997, at 41, 42.

32 Hyland, Va.J.Int’l Law 1993/94, at 406, 425 et seq. citing from Pufendorf, Dejure naturae et gentium libri octo, and Grotius, De jure belli ac pacis libri tres.

33 See Atiyah, An Introduction to the Law of Contract, 5th ed. 1995, at 7 et seq.34 Zimmermann, ZEuP 1993, at 4, 30.35 Coquillette, in: Petit (ed.), Del Ius Mercatorum Al Derecho Mercantil, 1997,

at 143, 168 (citing from the Little Red Book of Bristol).36 See Kötz, Europäisches Vertragsrecht, Vol. I, 1996, at 11.37 Braeckmans, TvPr. 1986, at 1, 16.38 Hyland, supra note 32, at 427 et seq. (citing Flour and Aubert).

11

sional competence39. It is thus in the field of transnational business activities,where the force of the contractual consensus can flourish and develop itslaw-making quality, unhampered by consumer protection laws and notionsof distributive justice that go beyond the general principle of ‘good faith andfair dealing in international trade’.

b. The Contract as a Source of Transnational Business Law

The pressures and forces of the globalization process and of the self-regulation process of the global civil society have transformed the contractas the means of business self-organization into a source of law. The ‘Anti-BGB tendency’40 which is inherent in the comprehensive contracts of inter-national business, their nature as part of a chain or network of similar con-tracts concluded by businessmen for the purpose of bringing about thatparticular transaction, the morality and mutual trust of international business,the presumed rationality of standard contracts and general contract condi-tions, the idea of the increased professional competence and responsibilityof international businessmen, the fine-tuning of comparative law into a‘transnational rules method’41 and the rule-making by international formu-lating agencies42 and private working groups all contribute to a comprehen-sive legal process which ultimately contributes to the normative force of theprinciples and rules which result from these contracts43. The contract is nolonger the object of domestic rules to be applied to it according to tradi-tional conflict of laws principles. In modern business relationships, the con-

39 See, e.g . ICC Award No. 1990, Clunet 1974, at 897; No. 3380, Clunet 1981, at927; No. 5364, Clunet 1991, at 1059; see generally Berger, supra note 16, at 301 etseq.

40 Schmitthoff, supra note 1, at 6 (citing Judge Lagergren).41 Gaillard , Int‘l.Bus.Lawy. 1999, at 214, 221.42See Pfund, in: Carbonneau (ed.), Lex Mercatoria and Arbitration, 2nd ed.

1997, at 203, 205 et seq.43See Braeckmans, supra note 37, at 16; Galgano, Ann.Surv.Int’l.&Comp.L.

1995, at 99, 102; Gandolfi , Rev.trimestrielle de droit civil 1992, at 707, 710.

12

tract assumes the genuine function of a source of law:

‘Traditional legal concepts do not include the contract amongthe sources of law. But if we continue to conceive of the contract asa mere application of the law, and not as a source of law, we willpreclude the possibility of understanding how the law of our times ischanging. The contract is taking the place of the law, even in the or-ganization of society. Some decades ago Millibad wrote that, morethan ever, people considered the state as source of all provisions andeven as a source of their happiness. Today we must say that this no-tion is disappearing. Society now looks after itself and tends towardsself-organization...

The inadequacy of the law to make changes derives from twocharacteristics of contemporary economy. The first is the meta-national nature of the economy which is antithetical to the nationalcharacter of the legal systems. The second is that the economy is incontinuous change which demands flexible instruments of adaptationfrom the law to change, in antithesis to the rigidity of the laws’44.

This law-making function of the international business contract wouldnot be possible without the support and control by international arbitratorsas the natural judges of international trade. If the confidence of one side inthe compliance with the contractual terms by the other is disappointed,international arbitrators, whose jurisdiction is based on the consensus of theparties, assume the function of a control instance. The parties’ confidence isno longer focused on the counter-party’s will to comply with the contractualterms but on the competence of the arbitral tribunal as a privately consti-tuted and ‘genuine’ court for international trade. The transfer of the casefrom the plane of the individual bargain to the arbitral tribunal also leads to achange of perspective. The neutrality of the arbitrators requires them to

44 Galgano, id.; Gandolfi , id., stating that this lawmaking through contractpractice is tending towards an ‘éloignement progressif d’une vision étatiste dudroit’.

13

take an objective view of the case, applying objective commercial stan-dards such as ‘fair dealing’, ‘reasonableness’ and ‘trade usages’, therebyenriching the abstract contractual consensus (‘pacta sunt servanda’) withlegal and commercial safeguards45. The private character of the arbitralprocess may therefore not be used as an argument to deny the controlcompetence of international arbitrators. Rather, the contractual character oftheir competence guarantees the homogenous character of the transnationallegal process in that not only the participation in it but also the compliancecontrol is based on the same legal notion, i.e. the contractual agreement assuch. It is not surprising, therefore, that both general contract law and arbi-tration, are characterized by the same principle: ‘in favorem validitatis’.

III. THE THIRD LEVEL: TRANSNATIONAL LAW IN LEGAL PRACTICE

Now that the phenomenon of globalization has instilled new momen-tum in the theory and methodology of transnational commercial law thequestion remains: is the new law merchant actually being accepted and usedby international practitioners who are operating in a globalized businessenvironment? Or do international practitioners prefer the foreseeability andpredictability of domestic laws? This latter allegation is the argument mostfrequently raised against the lex mercatoria doctrine. In order to find a reli-able empirical basis to answer these questions, the Center for TransnationalLaw (CENTRAL) at Münster University, Germany with the support of theVolkswagen-Foundation has conducted the first worldwide enquiry on theuse of transnational commercial law in legal practice, i.e. in negotiations,contract drafting and arbitration. A questionnaire was sent to more than2.700 practitioners from international law firms and major international

45 Cf. Bonell, ICLQ 1978, at 413, 428: ‘...in interpreting commercial transactions,particularly when concluded at an international level, it is not sufficient to base one-self on the confidence which the parties might have established between themselves;due consideration must also be given to the expectation which the generality of theoperators has of fair dealing in the respective trade sector’.

14

companies. The return rate was 29.6% which means that 808 addresseeshave responded to the enquiry46.

Their responses have revealed that a significant part of internationalpractice is already familiar with the concept of transnational law (1.). Theyhave also shown that the reasons why practitioners still reject this conceptin legal practice are rather pragmatic than resulting from a principal aversionagainst the notion of transnational commercial law (2.)

1. Practitioners‘ Experiences with Transnational Law

a. Awareness of Transnational Law

One of the most important result of the CENTRAL enquiry relates tothe international practitioners’ awareness of the use of transnational law ininternational practice. This refers to both their own practice or to caseswhich they had heard of.

About one third of those addressees who replied to the enquiry indi-cated that they were aware of the use of transnational commercial law ininternational contract negotiations and choice of law clauses47. The resultwas even higher (42%) in the context of international commercial arbitra-tion. This difference is not surprising given the liberal character of arbitrationproceedings and their isolation from traditional rules of domestic conflict oflaws doctrine which provides the ideal background for the use and devel-opment of transnational legal principles and rules, detached from the con-

46 See for details of the CENTRAL Enquiry Berger/Dubberstein/Lehmann/Petzold, in: Berger (ed.), The Practice of Transnational Law., 2001, at 91 etseq.; Berger/Dubberstein/Lehmann/Petzold, Int’l.Arb.L.Rev. 2000, at 145 et seq.;Berger, Int’l.Arb.Rep. September 2000, at 26 et seq. (= Association Suisse del’Arbitrage Bulletin 2000, at 654 et seq.); see also Nottage, Vindobona Journal 2000, at132, 136 et seq.

47 See Berger/Dubberstein/Lehmann/Petzold, in: Berger (ed.), The Practice ofTransnational Law, 2001, at 91, 103 et seq.

15

straints of domestic legal rules48. It is for this very reason that in the contextof contract drafting, the overwhelming majority (85%) of those addresseeswho had indicated that they had been in touch with transnational law in thecontext of contract drafting indicated that the contract contained an arbitra-tion clause49. The transnational character of arbitration also explains whymore attorneys than corporate lawyers tended to reveal practical experi-ence with transnational law. While corporate lawyers have only occasionalcontact with arbitration, many attorneys included in the enquiry were arbi-tration specialists.

What is surprising is the fact that such a high percentage of the ad-dressees indicated their awareness of the use of transnational law in legalpractice. When evaluating this rate of positive responses, it has to be bornein mind that there was a high number of arbitration experts among the ad-dressees of the questionnaire. They show a natural favorable tendency to-wards comparative decision making50 as a basic prerequisite for the con-cept of transnational commercial law. It is due to this fact that internationalarbitrators are generally regarded as one of the creators of the new lawmerchant51. In spite of this reservation, the high percentage of positive re-sponses is surprising given that the alleged rejection by international legalpractice serves as one of the main arguments for those who oppose theexistence of an autonomous legal system of international trade law. Thesignificance of this data is underscored by the fact that in all three categories(contract negotiations, contract drafting and arbitration) a significant number

48 Schmitthoff, International Trade Usages, 1987, No. 71: ‘Substantive law isoften born in the womb of procedure. In keeping with their international character,the law which these international arbitral bodies create is transnational. It is the newlex mercatoria.’; see also David, Le Droit du Commerce International,1987, at 127 etseq.

49 Berger/Dubberstein/Lehmann/Petzold, supra note 47, at 104.50 Fouchard , L’Arbitrage Commercial International, 1965, at 445; Goodman-

Everard , Arb.Int'l 1991, at 155, 161.51 See Berger, supra note 15, at 7 et seq.

16

of addressees indicated that they were aware not just of one single case butof 2 – 5 cases in which transnational commercial law had been used. Asignificant number of addressees even indicated that they were aware of 6 –10 cases where transnational law concepts had been used52.

b. Subject Matters of the References to Transnational Law

It is important to note that due to the inherent vagueness of the con-cept of transnational law, these replies have to be viewed against the back-ground of what exactly had been referred to in the cases which the ad-dressees were actually aware of. Again, the CENTRAL enquiry shows arelatively consistent pattern in all three categories (contract negotiation,contract drafting and arbitration). 'General Principles of Law' was the ter-minology which had been used most often, followed by 'Lex Mercatoria',and 'UNIDROIT Principles of International Commercial Contracts'. Also,reference to 'Transnational Principles of Law' has been made quite fre-quently53. These figures, however, are not very indicative since the term'Transnational Principles of Law' can only be regarded as a catch-all cate-gory without any general significance. Again, this result confirms both gen-eral commercial practice and the theory of transnational commercial law.

In legal theory, general principles of law are regarded as the majorcomponents of an autonomous system of the new law merchant both withrespect to their genetic function as regards concrete and specific legal rulesand with respect to their function as reference points for the valuation proc-esses within this legal system54. In legal practice, the reference to transna-tional principles of law has always been the major approach towards the'internationalization' of international commercial contracts55. The fact that in

52 Berger/Dubberstein/Lehmann/Petzold, supra note 47, at 104 et seq.53 Berger/Dubberstein/Lehmann/Petzold, supra note 47, at 105 et seq.54 See Dasser, Internationale Schiedsgerichte und Lex Mercatoria, 1989, at

116; Osman, Les Principes Généraux de la Lex Mercatoria, 1992, at 322 et seq.55 See, e.g . Delaume , ICSID Rev.-FILJ 1988, at 79 et seq.

17

a comparatively large number of cases reference has been made to the ‘lexmercatoria’ is surprising. In the context of the use of transnational law inlegal practice, it is frequently the use of the terminology which plays a majorrole in the discussion about the rejection or acceptance of this concept. Ithas therefore been rightly suggested that the terminology “lex mercatoria”should be abandoned in favor of the term “transnational commercial law”56.Given the severe dispute about the viability of a doctrine of transnationalcommercial law, it can be assumed that many practitioners perceive theterm 'lex mercatoria' to be overloaded with the alleged doctrinal and practi-cal difficulties that are usually attached to the concept of the transnationali-zation of commercial law57. One of the addressees, an eminent arbitrationspecialist from Europe, responded to the enquiry:

'In these [arbitration] cases as well as in many others, I did in-voke in my briefs, memorials or oral arguments..., rules of transna-tional law or the lex mercatoria, but, on practically all occasions, al-though all these cases were won, the arbitrators, if I remember cor-rectly, preferred in general to avoid any specific reference to transna-tional law or lex mercatoria! I may add ... that, according to my ex-perience, most of the distinguished arbitrators I have been dealingwith preferred to invoke "general principles of law" or "legal princi-ples common to the parties" opposed in the case rather than one ofthese new concepts!

...On a number of occasions, the arbitrators have indeed resortedto these somewhat new legal concepts but they left them nameless.They have, sometimes upon the suggestion of one or the other mem-ber of the tribunal, avoided to mention these formula expressis verbis.

56 See Bamodu, African Journal of Int’l. and Comp.L. 1998, at 31, 42 et seq.57 See Molineaux, J.Int’l Arb. 2000, No. 1, at 147: ‚...there is apparently even a

fourth, sub rosa, category: arbitrators who covertly support the lex mercatoria con-cept but do not want their predilection bruited about for fear of being labelled asdevotees of an allegedly uncertain, unpredictable system’.

18

They were apparently afraid to open the door to an appeal for nullityof the award by the losing party’.

Thus, practitioners frequently tend to avoid the term ‘lex mercato-ria’ or, since their publication in May 1994, prefer to make reference to the'UNIDROIT Principles of International Commercial Contracts'. In theirPreamble, these Principles provide that they 'may be applied when the par-ties have agreed that their contract be governed by general principles oflaw, the lex mercatoria or the like'. The direct selection of the Principles bythe parties or arbitrators, however, has the advantage of allowing the par-ties to make a reference to a set of neutral, workable and concrete princi-ples and rules just as if they were making reference to their domestic codeinstead of a vague and abstract notion of transnationalism with which manyparties or arbitrators would not feel comfortable. Even though the Principlesdo not necessarily 'codify' the new law merchant58, reference to the Princi-ples helps counsel and arbitrators to avoid the emotions and misunder-standings which are necessarily connected with any discussion on the dog-matic or practical viability of the doctrine of transnational commercial law.This explains why they have been mentioned so often in the CENTRALenquiry. This result is in line with the UNIDROIT enquiry undertaken in1997. 59% of the addressees who had replied to that survey indicated thatthey had used the Principles as guidelines in contract negotiations, 13.1%had referred to the Principles in support of a solution adopted in an arbitralaward59. The frequent reference to arbitration in both studies is confirmedby recent studies on the use of the principles in international commercialarbitration. They have revealed that the Principles do in fact help interna-tional arbitrators to find 'better' solutions for international commercial dis-

58 See Berger, supra note 15, at 14.59 See UNIDROIT (ed.), The use of the UNIDROIT Principles in Practice, Re-

sults of the first inquiry undertaken by the Secretariat of UNIDROIT, 1997, at 2.

19

putes60.

60 See Berger, 46 Am.J.Comp.L. 1998, at 129 et seq.; Bonell, An InternationalRestatement of Contract Law, 2nd. ed. 1997, at 241 et seq.

20

c. Possible Function of the Reference to Transnational Law

The CENTRAL enquiry has revealed a further important factor forthe understanding of the functioning of the concept of transnational law inlegal practice. This point relates to the function which a reference to thenew law merchant may play in contract negotiations, contract drafting andarbitration. It is important to note at the outset that the knowledge of a casewhere transnational law has been used does not necessarily mean that it hasbeen used as the applicable law.

In all three categories (contract negotiations, contract drafting andarbitration), the number of addressees who had indicated that transnationallaw had been used 'in connection with domestic law', i.e. above all withrespect to the supplementation and interpretation of domestic law tended tobe higher than the number of addressees who indicated that transnationallaw served to actually replace domestic law as the lex causae61. It has tobe emphasized that these figures can only serve to support a general trendsince multiple answers were possible. Still, this distribution of answersserves as an indication for the flexible character of transnational law. It alsoreveals the 'Cartesian pragmatism' with which international legal practice isapproaching the issue of the transnationalization of the global legal processtoday. Rather than entering into time-consuming discussions on the benefitsof transnational law as opposed to domestic law, this concept is used withinthe framework of domestic laws to arrive at solutions which are better ableto meet the needs of the international businessman. In the context of inter-national arbitration, this approach is reflected in the notion of the 'interna-tionally useful construction'62 of domestic laws. It was used by an ICC arbi-trator who interpreted the applicable Dutch contract law in the light of the

61 Berger/Dubberstein/Lehmann/Petzold, supra note 47, at 107.62 See Berger, supra note 16, at 183 et seq.; Berger, Festschrift Sandrock,

2000, at 49 et seq.

21

UNIDROIT Principles63.

A second significant group of responses relates to the use of transna-tional law to supplement or interpret international uniform instruments64. Thisapproach has always been the major focus of attention of both practice andtheory. It serves the important function of avoiding the dilution or 'nationali-zation' of international uniform law once it has been transformed into a do-mestic legal system where it is exposed to the traditional methods of con-struction of that particular jurisdiction65. It is for this reason that theUNIDROIT and Lando Principles make explicit reference to their functionas a means to 'interpret or supplement international uniform law instru-ments'.

Finally, it should not be overlooked that a significant number of re-sponses referred to the use of transnational law as a 'means to improve theunderstanding between parties from different legal systems and with differ-ent languages'66. This result is in line with UNIDROIT’s 1997-Study, where30.9% of the persons who replied had indicated that they had used thePrinciples as a means to overcome language barriers in contract negotia-tions or arbitration67. These problems are obvious and well-known to eve-rybody who is practicing international commercial law. However, it is notjust the language alone but the different legal concepts of the jurisdictionswhich frequently prevent an understanding of the parties. The negotiationsof the Channel Tunnel Construction Contract provide a perfect example forthis dilemma68. Transnational law is based on the functional legal compari-

63 ICC Award No. 8486, Clunet 1998, 1047 with Note Derains, id., 1050 (Englishtranslation in Yearbook Commercial Arbitration XXIV (1999), at 162 et seq.).

64 Berger/Dubberstein/Lehmann/Petzold, supra note 47, at 108.65 See Ferrari, Rev.int.dr.comp. 1996, at 813, 831; Schwarzenberger,

Rec.Cours 1966-I, at 1, 9.66 Berger/Dubberstein/Lehmann/Petzold, supra note 47, at 108.67 See UNIDROIT, supra note 59, at 2.68 Berger, supra note 15, at 2 et seq.

22

son, a methodology that tends to look behind the dogmatic differences ofdomestic legal systems by distilling common legal values and concepts outof seemingly different domestic legal rules69. This methodology provides anexcellent means to overcome the barriers imposed by different languagesand different legal concepts in contract negotiations and arbitration. Ulti-mately, this function of transnational legal concepts in removing languagebarriers in the law and practice of international trade provides additionalimpetus for the development of the new law merchant. Again, this revealsthat the new lex mercatoria is born out of practical needs of the businesscommunity and not out of the theoretical discussions of some learned lawprofessors.

d. Individualization of Certain Principles or Rules

The CENTRAL questionnaire also asked the addressees to state ex-actly to which principles of transnational law reference had been made dur-ing contract negotiations (Question 3). The answers received confirmed theexpectations of the Research Team that it is hardly possible to receiveenough answers to accumulate significant data with respect to the use ofcertain principles or rules. The only relevant answers referred to ‘goodfaith’, ‘pacta sunt servanda’ and ‘hardship/force majeure’70. One ad-dressee indicated that certain transnational rules and principles have beenused as ‘contractual compromise solutions’ or ‘lowest common denomina-tor’ without, however, indicating individual rules which have been used inthis context.

69 Cf. Kötz, RabelsZ 54 (1990), at 203, 209 et seq.: ‘The initial question of anycomparative work has to be ... posed in a purely functional manner, i.e. the problemunder review has to be cleared in a hard-hearted manner from the systematic notionsand values of one's own legal system and has to be formulated in a language whichdescribes the problem in a manner that makes the inherent collision of interests un-derstandable for every listener, whether lawyer or layman, German or not’ (translationby the author).

70 Berger/Dubberstein/Lehmann/Petzold, supra note 47, at 109.

23

These answers are significant only insofar as they relate to principlesand notions which have always been criticized as too vague and broad andas the major examples for the uselessness of the lex mercatoria concept.These data relate to the value that is attached by international legal practiceto the notions of legal certainty and predictability. Again, these notions havefor a long time served as standard arguments against the lex mercatoria.They become even more relevant in the second major group of answers inthe CENTRAL enquiry to be discussed immediately below.

2. Reasons for Practitioners’ Rejection of the Concept of Transna-tional Law

The CENTRAL Enquiry has also yielded data which show whymany international practitioners reject the concept of transnational commer-cial law. It does not come as a surprise that these reasons are rather prag-matic than dogmatic. The enquiry has revealed a major gap between thetheory of transnational commercial law and legal reality. For decades thosewho have so vigorously opposed the theory of the new law merchant havereferred to the fact that the lex mercatoria does not provide a completelegal system, that the principles and rules are too vague and lack the neces-sary certainty and predictability71 and that awards based on transnationalcommercial law might not be enforceable before domestic courts72.

The CENTRAL enquiry shows that the alleged incompleteness of thelex mercatoria and enforcement concerns do not play a major role in legalpractice even though the study has also revealed that practitioners attachsubstantial if not overwhelming weight to the issue of enforceability in gen-

71 See F.A. Mann, BYIL 1957, at 20, 36: ‘They [i.e. transnational legal princi-ples] may, on occasion, be useful to fill a gap but in essence they are too elementary,too obvious and even too platitudinous to permit detached evaluation of conflictinginterests, the specially legal appreciation of the implications of a given situation. Inshort, they are frequently apt to let discretion prevail over justice’.

72 See for an extensive discussion of standard arguments against the lex mer-catoria Berger, supra note 16, at 43 et seq.

24

eral73. More important, answers referring to the vagueness and uncertaintyof transnational commercial law are by far outweighed by those replies thatrefer to the lack of practical experience and the fact that no information hasbeen available on the subject of transnational commercial law.

When evaluating these data it has to be borne in mind that the ques-tionnaire contained preformulated answers as to the lack of experience andinformation while arguments relating to the vagueness and uncertainty of thelex mercatoria had to be filled in by the addressees under the generalheading 'suitability' or 'other reasons'. Even under this caveat, these resultsseem to confirm the view that in international business, foreseeability andlegal certainty are no absolute and dominant values:

“...we submit that, contrary to common wisdom, transna-tional rules offer as much predictability, if not more predictability,than genuine legal systems. Obviously, the list approach [i.e. thedrafting of international restatements of contract law] has provided afirst answer to the criticism according to which transnational law ishard to locate, almost in the physical sense of the word, as opposedto a neat leather-bound series of law reports, or a convenient elec-tronic data base, and is thus vague and unpredictable. More funda-mentally, the criticism is based on a remarkably abstract perceptionof the law, totally detached from the realities of commercial transac-tions and the actual needs of ‘ordinary businessmen’”74.

The results of the enquiry also seem to confirm that international legalpractice does not follow the misleading argument that the viability of trans-national commercial law necessarily requires the completeness of its rulesand principles. Instead, it seems that many practitioners simply lack thenecessary experience or information about the use of transnational law. Oneaddressee stated that 'among legal counsel and parties, transnational law is

73 Berger/Dubberstein/Lehmann/Petzold, supra note 47, at 110.74 Gaillard , supra note 10, at 64.

25

practically not known'. In the eyes of many addressees this lack of knowl-edge would cause too much need for explanation and thus too much timeduring contract negotiations or arbitration. Other addressees indicated that‘we would need a stable, established definition of transnational law in orderto use it; since we are not conversant with its application/definition, we areunlikely to refer to it’. Yet another one simply stated: ‘I want to see how itoperates in practice first’. Also, many addressees stated that it was due tothis lack of knowledge that in their view, the lex mercatoria lacks the neces-sary legal certainty. One addressee stated:

‘When a legal relationship between the parties may be per-fectly framed in a set of (specific, well-known and complete) rules oftransnational law, I would agree that the advantages that would arisefrom the knowledge of both parties of the applicable rules would belarge’.

Another addressee spoke for many others and complained that ‘in-formation on transnational law (such as reference books, court decisionsand arbitration awards in prior cases etc.) is not available’. Finally, oneaddressee emphasized that knowledge of one side of the contract negotia-tions or the arbitration might not be sufficient to have transnational law ap-plied in certain cases:

“I think that there is an additional reason why as counsel Iwould not rely on principles of international law: Advising clients touse these principles might imply my responsibility, since the predict-ability of their application is low. In negotiations, one tends not to in-novate too much. Negotiating with another party by invoking theseprinciples requires that the other party is as well assisted by some-body who is aware of these principles and knows how to handlethem. This is not always the case”.

Thus, the CENTRAL enquiry with its world-wide coverage confirmsthe results that Gordon achieved in his small scale study in Florida. Thatstudy also revealed the poor knowledge of practitioners about CISG and

26

the UNIDROIT Principles75. It can be assumed that this lack of informationand practice is one of the reasons why a large number of addressees stillprefers the use of national law.

It is important to note that according to the data derived from theCENTRAL enquiry, pragmatic reasons seem to prevail among legal practi-tioners over principal dogmatic reservations against the use of the conceptof transnational commercial law. In fact, international business practiceseems to be trapped in a vicious circle today. 276 of the addressees(43.19%)76 have indicated that the issue of 'acceptance' of transnationalcommercial law is an important or even very important factor for theirevaluation of the pros and cons of the lex mercatoria. Without information,however, there is no chance for acceptance of the new law merchantamong international legal practitioners.

75 Gordon, Am.J.Comp.L. 1998, at 361 et seq.76 Berger/Dubberstein/Lehmann/Petzold, supra note 47, at 111 et seq.

27

CONCLUSION

At the outset of the 21st century, the globalization phenomenon hascaused state sovereignty to disappear as the major stumbling block in theway towards the transnationalization of international commercial law. Thefocus of theory and practice of international business law has changed fromlawmaking by national sovereigns or international organizations to informalrulemaking and self-organization by the international business community:

“There can be no doubt that business self-regulation is nowhere to stay, and that it is indeed a threat to traditional ways of [legal]thinking insofar as these cannot cope with the globalization of trade ...In this respect the challenge for the years to come ... will be that ofredefining the allocation of responsibility for legitimate rule-makingbetween states and business”77.

As a consequence of this development, informality and pragmatismhave gained ground in the theory as well as in the practice of transnationalcommercial law. Cartesian pragmatism prevailed when England and Francenegotiated the choice of law clause in the Channel Tunnel ConstructionContract78. UNIDROIT and the Lando Commission issued the Restate-ments of European and international contract law even though the exactlegal nature of these instruments is still discussed today. While this discus-sion is going on in the academic world, the Restatements are praised as the“ratio scripta” of international contract law. They are being used by inter-national arbitrators with increasing frequency. They are even used by do-mestic legislatures as a model for their own legislation. Pragmatism and thepower of facts (“Macht des Faktischen”) has again prevailed. Pragmatismhas also reached legal theory when it is argued that “if not a genuine legalorder, transnational rules do perform, in actual practice, a function strikingly

77 Gélinas, J.Int’l Arb. 2000, No. 4, at 117, 122.78 See P. Nouel, Int’l.Bus.Lawy. 1996, at 22 et seq.

28

similar to that of a genuine legal system”79.

What will the future bring? UNIDROIT is working on a second edi-tion of the Principles80. The Lando Principles are regarded as the nucleus ofa European Civil Code81. In November 2000, the Committee for LegalAffairs and Common Market Policy of the European Parliament has urgedto discuss this issue “in a pragmatic fashion and freed from dogmatic con-straints”82. The Center for Transnational Law at Münster University willpresent the first online database on transnational commercial law in October2001, making the CENTRAL List of Transnational Rules and Principlestogether with comprehensive references accessible through the internet forpractitioners and academics all over the world83. Finally, the idea of a“Global Commercial Code” as a compilation of special rules relating to themost important kinds of commercial transactions to be drafted byUNCITRAL is being relaunched84.

All these projects reflect a truth which has been expressed inUNIDROIT‘s 1971 Report to UNCITRAL on the “Progressive codifica-tion of the law of international trade”, at a time when the new lex mercatoriawas rediscovered by the French school85:

“The very fact that the legal relationships of internationaltrade are international in character puts them outside the jurisdictionof municipal law and makes them governable by a law removed fromany national contingencies, that is, an ordinary law of international

79 Gaillard, supra note 10, at 65.80 Bonell, supra note 60, at 256 et seq.81 See Lando, in: Weyers (ed.), Europäisches Vertragsrecht, 1997, at 81, 101.82 See Working Paper on the Approximation of the Civil and Commercial Laws

of the Member States of the Committee for Legal Affairs and Common Market Policyof the European Parliament of November 6, 2000, at 5.

83 Berger, in: Berger (ed.), The Practice of Transnational Law, 2001, at 120.84 Bonell, Uniform Law Review 2000, at 469 et seq.85 See supra note 1.

29

trade, which alone can provide the legal framework which interna-tional trade needs in order to develop...”86.

(March 2001)

86 UNCITRAL Yearbook I (1968-1970), at 285, 286.