A Modern - I - Lex Mercatoria - I - Political Rhetoric or Substantiv
A Modern - I - Lex Mercatoria - I - Political Rhetoric or Substantiv
A Modern - I - Lex Mercatoria - I - Political Rhetoric or Substantiv
1977
Recommended Citation
Louise H. Hayes, A Modern Lex Mercatoria: Political Rhetoric or Substantive Progress?, 3 Brook. J. Int'l L. (1977).
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NOTES
A MODERN LEX MERCATORIA: POLITICAL
RHETORIC OR SUBSTANTIVE PROGRESS?
INTRODUCTION
1. Lecturer in Law, the City of London College; General Reporter to the London
Colloquium on the New Sources of the Law of International Trade.
2. Schmitthoff, The Law of International Trade, Its Growth, Formulation and
Operation, in INTERNATIONAL ASSOCIATON OF LEGAL SCIENcE, THE SOURCES OF TH LAW OF
INTERNATIONAL TRADE 5 (C. Schmitthoff ed. 1964) (compilation of articles, reports, and
summaries of discussions, all of which were part of the proceedings of the London Collo.
quium on the New Sources of the Law of International Trade held in 1962).
3. Schmitthoff, Introduction to INTERNATIONAL ASSOCITION OF LEGAL SCIENCE, TIM
SOURCES OF THE LAW OF INTERNATIONAL TRADE at x (C. Schmitthoff ed. 1964).
4. Honnold, Memoire In Honour of Clive M. Schmitthoff, in LAW AND INTERNATIONAL
TRADE 10 (F. Fabricius ed. 1973).
In 1966 the General Assembly created the United Nations Commission on Inter-
national Trade Law (UNCITRAL); this new Commission of twenty-nine States,
representing each of the great regions of the world, is moving strongly forward
with its task of clearing away legal impediments to world trade. . . . Dr.
Schmitthoff's writings had helped produce the climate of opinion that made this
step possible.
1977] MODERN LEX MERCATORIA
charitable motive. But in France, under the Carolingians, royal prerogatives began to be
asserted over the designation and management of the fairs. The King undertook to guaran-
tee safe conduct to merchants travelling to and from the fairs. A knight and a merchant
were generally appointed to administer the fairs, and the administrative officer of the fair
also became an "officer of justice." Disputes were settled by these officers of justice by
applying those laws which had evolved as customs among the merchants. F. SANBORN,
supra note 9, at 134-38. An historian writing of this period said that "the merchants were
a class distinguished from the rest of the community by legal privileges that gave them a
protection which others did not share, while market and fair formed a separate judicial
unit which no royal judge could enter." W. MITcHELL, AN ESSAY ON THE EARLY HISTORY OF
THE LAW MERcHANT 25-26 (1904), cited in F. SANBORN, supra note 9, at 137 n.79.
15. F. SANBORN, supra note 9, at 127.
16. Nevertheless, by the time of the Norman Conquest, England was already engaged
in trade with the Continent, e.g., shipping embroidery to Italy. Id. at 329. Ideas of special
laws to protect merchants had been expressed even earlier. Ethelred the Redeless had
declared during his reign in the late tenth and early eleventh century that merchant ships
coming from the high seas into any port shall be "at peace." Id. at 328.
17. Id. at 333-34. If the fairs extended beyond their appointed time, penalties were
assessed. Any goods sold after the time of the fair were fined double the value of the goods.
Id.
18. Honnold, supra note 8, at 70. There have been various explanations of the origins
of the term "piepowder." One possibility is that it is derived from the word pes
pulvericatus, or dusty feet, descriptive of the feet of the men who wandered from fair to
fair; another is that it is derived from the old French piedpulderaux, the term for peddler.
Coke and Blackstone believed that the term was descriptive of the swiftness of justice in
these courts, i.e., that justice was done before dust could fall from the feet of those before
the court. F. SANBORN, supra note 9, at 335 n.91.
19. Id. at 332.
20. Id. at 335-36. Some courts were organized in those towns in which a single com-
modity was traded. These were known as "staple" courts. Id. at 393-94; see Honnold,
supra note 8, at 70-71.
21. 1 W. HOLDSWORTH, A HISTORY OF ENGLISH LAw 536 (3d ed. 1922).
22. F. SANBORN, supra note 9, at 339.
23. Id.
BROOKLYN J. INT'L L. [Vol. 1111:2
limited to the time of the fair or market, but extended to all civil
cases except those having to do with land, and to criminal cases
as well, since the courts were responsible for the maintenance of
order during that period.24 These laws of the fair, born of the
"peace of commerce, ' 25 grew "out of the necessities and customs
' '2
of trade.
Although legal authorities may have exaggerated the uni-
21
formity of rules in England from fair to fair or city to city, it
appears likely that the compelling reasons for the existence of a
lex mercatoriato settle disputes between merchants with fairness
and dispatch led fairs and markets to develop compatible laws:
For the maintenance of Traffick and Commerce is so pleasant,
amiable, and acceptable unto all Princes and Potentates, that
Kings have been and at this day are of the Society of Merchants:
And many times, notwithstanding their particular differences
and quarrels, they do nevertheless agree in this course of Trade,
because Riches is the bright Star, whose height Traffick takes
to direct it self by, whereby Kingdoms and Commonwealths do
flourish; Merchants being the means and instruments to per-
form the same, to the 2Glory,
8
Illustration, and benefit of their
Monarchies and States.
The decline of these special courts in England began in the
fourteenth century.29 The power of merchants to influence deci-
sions and determine the laws used therein diminished, and the
Statute of 147710 narrowed jurisdiction of the courts to the area
within the market or fair grounds.3 ' In the seventeenth century,
Lord Chief Justice Sir Edward Coke brought all law under the
domination of the common law courts.2 In some respects, how-
24. Id. at 336-37. For decisions in some of these early cases, see SELDEN SOCIETY,
SELECT CASES CONCERNING THE LAW MERCHANT (1908).
25. W. BEWES, THE ROMANCE OF THE LAW MERCHANT 138 (1923).
26. Id. at vii. For a fascinating discussion of the trading towns and activities and rules
of the guilds, see Adler, Labor, Capital & Business at Common Law, 29 HARV. L. REV.
241, 246-48 (1916).
27. Honnold, supra note 8, at 71.
28. G. MALYNEs, supra note 10, at a.
29. F. SANBORN, supra note 9, at 354.
30. 17 Edw. 4, c.2.
31. F. SANBORN, supra note 9, at 337. Part of the impetus for diminishing the power
of the courts came as a backlash to the concessions given the Hanseatic League under
Edward I and Edward II. The League was given extraordinary privileges and put beyond
the reach of local laws. Dislike of the Hanseatics seems to have led to a general dislike of
all foreign merchants. Id. at 364-66, 374.
32. Honnold, supra note 8, at 71.
1977] MODERN LEX MERCATORIA 215
A. UNCITRAL
As a result of this growing interest in the development of a
new law merchant, the United Nations, on December 20, 1965,
adopted a resolution proposed by the People's Republic of Hun-
gary.44 This resolution urged the United Nations to foster further
cooperation between the groups working toward development of
a law of commerce and to commit itself to a goal of progressive
45
unification of international trade law.
active in this field and to explore the need for other measures for the progressive
unification and harmonization of the law of international trade,
1. Requests the Secretary-General to submit to the General Assembly at
its twenty-first session a comprehensive report including:
(a) A survey of the work in the field of unification and harmonization of
the law of international trade;
(b) An analysis of the methods and approaches suitable for the unification
and harmonization of the various topics including the question whether particu-
lar topics are suitable for regional, interregional or world-wide action;
(c) Consideration of the United Nations organs and other agencies which
might be given responsibilities with a view to furthering co-operation in the
development of the law of international trade and to promoting its progressive
unification and harmonization.
Id.
46. Report of the Secretary-General, 21 U.N. GAOR, 3 Annexes (Agenda Item 88) 2,
U.N. Doc. A/6396 (1966).
47. The objective of the Hague Conference on Private International Law is to work
for the "progressive unification of the rules of private international law." Id. at 6. It
prepares draft conventions to be adopted by member States, and in addition promotes
their incorporation into the municipal laws of each State. The Conference has had a
cooperative arrangement with the United Nations since 1958. Id. at 6-7.
48, Id. at 5-20.
49. Id. at 24.
50. Id. at 20.
51. Id. at 24-25.
52. 1 THE EUROPA YEAR BOOK 1976: A WoRL SuRvav 244-47 (1976).
53. Report of the Secretary-General, supra note 46, at 21.
BROOKLYN J. INT'L L. [Vol. 111:2
54. 1 THE EUROPA YEAR BOOK 1976: A WORLD SuRvEY 144-49 (1976).
55. Report of the Secretary-General, supra note 46, at 21.
56. Id.
57. Id.
58. Id.
59. G.A. Res. 2102, 20 U.N. GAOR, Supp. (No. 14) 22, U.N. Doc. A/6014 (1965).
60. Id. at 21.
61. Id. at 24-25. UNCITRAL was to remedy the current fragmented situation in
international commercial law by:
(a) Co-ordinating the work of organizations active in this field and encouraging
co-operation among them;
(b) Promoting wider participation in existing international conventions, and
wider acceptance of existing model and uniform laws;
1977] MODERN LEX MERCATORIA 219
(c) Preparing, and promoting the adoption of, new international conventions,
model laws and uniform laws, and the codification and wider acceptance of
international trade terms, provisions, customs and practices;
(d) Promoting ways and means of ensuring a uniform interpretation and appli-
cation of international conventions and uniform laws in the field of the law of
international trade;
(e) Collecting and disseminating information on national legislation and
model legal developments in the field of the law of international trade;
(f) Maintaining liaison with UNCTAD, the Economic and Social Council and
other United Nations organs and specialized agencies concerned with interna-
tional trade;
(g) Taking any other action as it may deem useful to achieve its purposes.
Id.
62. The Commission was originally organized with a membership of twenty-nine
nations with each member serving a six-year term. One-third of the group is elected every
two years. G.A. Res. 2205, 21 U.N. GAOR, Supp. (No. 16) 99, U.N. Doc. A/6316 (1966).
In 1973, the Commission membership was increased to thirty-six. G.A. Res. 3108, 28 U.N.
GAOR, Supp. (No. 30) 146, U.N. Doc. A/9030 (1973).
63. See, e.g., Report of the United Nations Commission on International Trade Law,
31 U.N. GAOR, Supp. (No. 17) 22, U.N. Doc. A/31/17 (1976) (report on the work of its
ninth session) for a listing of observers.
64. H. GutrrrIDGE, COMPARATIVE LAw 183-84 (2d ed. 1949), cited in Report of the
Secretary-General, supra note 46, at 22.
65. Report of the United Nations Commission on International Trade Law, 23 U.N.
GAOR, Supp. (No. 16) 13, U.N. Doc. A/7216 (1968).
220 BROOKLYN J. INT'L L. [Vol. 111:2
66. Report of the United Nations Commission on International Trade Law, 24 U.N.
GAOR, Supp. (No. 18) 32-33, U.N. Doe. A/7618 (1969).
67. Report of the United Nations Commission on International Trade Law, 31 U.N.
GAOR, Supp. (No. 17) 4, U.N. Doc. A/31/17 (1976).
68. Id. at 16.
69. Id. at 34.
70. Id.
71. Id. at 11.
72. G.A. Res. 2929, 27 U.N. GAOR, Supp. (No. 30) 115, U.N. Doc. A/8730 (1972).
73. U.N. Doc. A/CONF.63/15 (1974). For a list of signatories and the single ratifying
State, see MULTILATERAL TREATIES IN RESPECT OF WHICH THE SECRETARY-GENERAL PERFORMS
DEPOSITORY FUNCTIONS 259, U.N. Doc. ST/LEG/SER.D/9 (1975).
74. Report of the United Nations Commission on International Trade Law, 31 U.N.
1977] MODERN LEX MERCATORIA
B. UNIDROIT
Prior to the creation of UNCITRAL, the work of coordination
was carried on by the International Institute for the Unification
of Private Law"0 [hereinafter referred to as UNIDROIT]. In ex-
amining the progress being made toward creation of a new law
merchant, the earlier and ongoing initiatives of this organization
must be considered.
UNIDROIT, headquartered in Rome, was established in 1926
under the auspices of the League of Nations."' In 1939, UNI-
DROIT severed its affiliation with the League but continued its
work financed by those States which chose to be members." This
organization attempts to unify specific branches of substantive
law of different countries. To accomplish this end, UNIDROIT
prepares draft conventions for adoption by diplomatic confer-
ences. Generally these draft conventions establish technical stan-
dards in specific areas of commercial dealings which are accepta-
ble to the governments of its member States. 3 UNIDROIT func-
tions also as a research and resource group-preparing reports,
draft proposals, and preliminary documents for other groups,
such as the United Nations Economic Commission for Europe. 4
UNIDROIT seeks to coordinate activities of organizations by as-
sembling "round tables-to find common ground acceptable by
the professions concerned." ' In this way it replicates to some
extent the old mercantile law courts which assembled members
of a profession in order to formulate rules for the governance of
the commercial activities of that profession. 8 Although most of
UNIDROIT's work is concerned with technical topics of
80. As of 1970, UNIDROIT had forty-five members: Austria, Belgium, Bolivia, Bra.
zil, Bulgaria, Canada, Chile, Colombia, Cuba, Czechoslovakia, Denmark, Ecuador, Fed-
eral Republic of Germany, Finland, France, Great Britain, Greece, Hungary, India, Iran,
Ireland, Israel, Italy, Japan, Luxembourg, Mexico, Netherlands, Nicaragua, Nigeria, Nor-
way, Pakistan, Paraguay, Portugal, Romania, San Marino, Spain, Sweden, Switzerland,
Turkey, United Arab Republic, United States, Uruguay, Vatican City, Venezuela, and
Yugoslavia. [1969] ANNUAIRE L'UNMCATION Du Daorr 7 (Institute International Pour
L'Unification du Droit Priv4).
81. Report of the Secretary-General, 21 U.N. GAOR, 3 Annexes (Agenda Item 88) 5,
U.N. Doc. A/6396 (1966).
82. 1 UNIFORM L. Rav. 21 (1976).
83. [1970] Y.B. UNIDROIT 19.
84. For example, UNIDROIT prepared for that group the Draft Convention on the
Contract for the International Carriage of Passengers and Luggage by Road. [19741 id.
at 69 n.1. For the full text of the Draft Convention see id. at 69-101.
85. [1970] id. at 29.
86. See W. YOUNG, supra note 37.
1977] MODERN LEX MERCATORIA
87. Its Yearbook, Uniform Law Review (prior to 1972 called Unification of Lau),
surveys work being done on unification of private commercial law. A quarterly, Uniform
Law Cases, reviews decisions on conventions and uniform laws which have been reached
in the courts of various countries. The looseleaf publication Digest of Legal Activities of
InternationalOrganizationsand Other Institutions gives an up-to-date sketch of the cur-
rent areas of international commercial law in which each of thirty-three formulating
groups and their various working parties are engaged.
88. See Report of the Secretary-General, supra note 46, at 21. Of the twenty-seven
signatories of the Final Act of the Conference produced by the Hague Conventions of 1964,
twenty-two were European countries. Id. at 5.
89. Farnsworth, UNCITRAL-Why? What? How? When?, 20 AM. J. Comp. L. 314,
315 (1972).
90. Id. at 316.
91. [1970] Y.B. UNIDROIT 19.
92. 1 REGISTER OF TEXTS OF CONVENTIONS AND OTHER INSTRUMENTS CONCERNING INTER-
NATIONAL TRADE LAw 39 (1971).
93. Id. at 64. For a recent chart showing ratifications see 14 INT'L LEGAL MATS. 852-
53 (1975). The Hague Convention entered into force in 1972.
BROOKLYN J. INT'L L. [Vol. ]I:2
102. Id.
103. Report of the Secretary-General, supra note 46, at 10.
104. K. BIVENS, supra note 6, at 71.
105. Charter of Economic Rights and Duties of States, G.A. Res. 3281, 29 U.N.
GAOR, Supp. (No. 31) 51, U.N. Doc. A/9631 (1974).
106. Id.
1977] MODERN LEX MERCATORIA
107. Id.
108. A heightened awareness of the effects of expropriation was experienced by
United States investors in the 1960's with the rash of expropriations of American-owned
enterprises in Cuba. At the time, the United States Department of State branded the
action "manifestly in violation of those principles of international law which have long
been accepted by the free countries of the West. It is in essence discriminatory, arbitrary
and confiscatory." State Dept. Note No. 397 to Cuban Ministry of Foreign Relations
(Sept. 16, 1960). When the matter came before the Supreme Court, however, in Banco
Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964), the Court declined to act or to apply
principles of international law. Id. at 428-31. In a more recent expropriation case, Alfred
Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682 (1976), four members of the
Supreme Court set forth the idea that when a country is acting as a trader it cannot seek
protection under either the sovereign immunity theory or the act of state doctrine, but
should be subject to the customary laws which govern merchants in their dealings with
one another. 425 U.S. at 695. Here, at least, lip service was paid the idea of a new law
merchant, although a majority of the Court did not espouse it. See Case Comment, 3
BROOKLYN J. INT'L L. 77 (1976).
The so-called traditional view of expropriation had recognized the right of a country
to expropriate for public purposes conditioned on the requirement of "adequate, effective,
and prompt" compensation. Note from Sec'y of State Hull to Mexican Ambassador (Apr.
3, 1940) MS. Dep't of State, File No. 812.6363/6659A, noted in 3 G. HACKWORTH, DIGEST
OF INTERNATIONAL LAW 663 (1942). This view was espoused by a majority of nations express-
ing an opinion circa 1940, but as Professor Friedmann noted in 1965: "We must remember
that a generation ago there was a more or less homogeneous club of western nations, and
that the question of protection of property in foreign investment was much more one-
sided. We have to take some account of the views of over 75 under-developed nations."
Domke, Friedmann, & Henkin, Act of State: Sabbatinoin the Courts and in Congress, 3
COLuM. J. TRANSNAT'L L. 99, 106 (1965) (remarks of Wolfgang Friedmann).
109. L. TURNER, MULTINATIONAL COMPANIES AND THE THIRD WORLD 88 (1973).
BROOKLYN J. INT'L L. [Vol. IH:2
110. From 1967 to 1971 the book value of direct foreign investment undertaken by
all investor nations increased from $108.2 billion to $165 billion. The United States invest-
ment grew from $59.5 billion to $86 billion. As of 1976, United States direct investment
overseas was estimated at more than $120 billion, three times that of any other nation.
Even if, as expected, levels of added United States overseas investment begin to taper off
in the late 1970's, it is estimated that not under $7 billion annually of additional overseas
inputs will be made. J. LAPALOMBARA & S. BLANK, MULTINATIONAL CORPORATIONS AND
NATIONAL ELITES: A STUDY IN TENSIONS 6-7 (1976) (National Industrial Conference Board
publication).
1977] MODERN LEX MERCATORIA
CONCLUSION
The need for a global structure has long been evident, but the
gap between developed and developing countries-a constant
challenge to tranquillity-has continued to widen. The growing
reality of our interdependence is in constant tension with the
compelling trends of separatism and intense nationalism ...
We live today in a world of many centers of power and contend-
ing ideologies; a collection of some 150-odd nations sharing few
agreed legal or moral assumptions; an international economic
system in which the well-being of all peoples is inextricably
intertwined; in short, a set of new historical realities in which
the challenges of peace, prosperity, and justice have no terminal
date and are unending.'
Although trade with and investment of capital in underde-
veloped nations will not solve all these problems, they represent
at least an appropriate and practicable way to attack them. Yet
it is clear that without the dependable framework of some sort of
international commercial law to govern these activities, there is
little hope even for a beginning. The disparity between the dream
of the 1962 London Colloquium and the reality of accomplish-
ment in 1977 is disheartening. But the "mills of the gods [do]
grind slowly,"" 2 and perhaps economic necessity will yet yield a
new law merchant.
Louise Hertwig Hayes
111. Address by Henry Kissinger, National Press Club (Jan. 10, 1977), reprinted in
43 VITAL SPEECHES 9 (1977).
112. F. VON LAGAU, "Retribution" (Longfellow trans.).
19771 MODERN LEX MERCATORIA
APPENDIX All
CAPITAL OUTFLOW AND REINVESTED EARNINGS (in billions)
DEVELOPED COUNTRIES 1966 1970 1971 1972 1973 1974 1975
113. BUREAU OF LABOR STATIsTIcS, SURVEY OF CURRENT BUSINESS, AUGUST 1976 (1976);
BUREAU OF LABOR STATISTICS, SURVEY OF CURRENT BUSINESS, SEPTEMBER1966 (1966). In each
of the selected years over a ten-year period, the total of capital outflow (new capital) has
been added to the amount of reinvested earnings to give the cumulative amount of direct
United States investment for the following year. Capital outflow and reinvested earnings
are expressed as a percentage of the total annual investment.
BROOKLYN J. INT'L L. [Vol. M11:2
APPENDIX B"'
UNITED STATES DIRECT FOREIGN INVESTMENTS IN 1975
(in millions)
Per-
Investment 1975 Earnings centage
ALL AREAS $133,168 $ 17,473 13.1%,
Petroleum 34,806 5,611 16.1
Manufacturing 56,039 6,232 11.1
Other 42,323 5,630 13.3
DEVELOPED COUNTRIES 91,139 9,683 10.6
Petroleum 20,336 1,620 8.0
Manufacturing 45,601 4,916 10.8
Other 25,203 3,146 12.5
Canada 31,155 3,399 10.9
Petroleum 6,209 865 13.9
Manufacturing 14,718 1,685 11.4
Other 10,228 850 8.3
Europe 49,621 5,164 10.4
Petroleum 11,381 502 4.4
Manufacturing 26,136 2,772 10.6
Other 12,104 1,890 15.6
Other 10,363 1,119 10.8
Petroleum 2,746 253 9.2
Manufacturing 4,747 460 9.7
Other 2,870 406 14.1
DEVELOPING COUNTRIES 34,874 7,382 21.1
Petroleum 11,147 3,912 35.1
Manufacturing 10,438 1,316 12.6
Other 13,290 2,153 16.2
Latin America 22,223 3,002 13.5
Petroleum 3,370 348 10.3
Manufacturing 8,553 1,117 13.1
Other 10,300 1,536 14.9
Other 12,651 4,380 34.6
Petroleum 7,776 3,564 45.8
Manufacturing 1,885 199 10.6
Other 2,989 617 20.6
INTERNATIONAL AND
UNALLOCATED $ 7,155 $ 408
114. Id. Investment for 1975 is divided by earnings for that year to show the percen-
tage return on investment. This percentage is higher in developing countries than in
developed ones, both for each industry grouping and in total. This indicates that firms
investing in developing countries attempt to earn their returns over a much shorter period
of time because of the relative instability of those countries.