Non-State Rules in International Commercial Law

Contracts, Legal Authority and Application

Johanna Hoekstra

• Publisher: Routledge
• Year: 2021
• Print ISBN: 9780367195441
• eBook ISBN: 9781000362633
• Edition: 1
• Topic: Law
• Subtopic: Commercial Law
• Index: Law

Through further technological development and increased globalization, conducting busines abroad has become easier, especially for Small and Medium Enterprises (SME). However, the legal issues associated with international commerce have not lessened in complexity, including the role of non-state rules.

The book provides a comprehensive analysis of non-state rules in international commercial contracts. Non-state rules have legal authority in the national and international sphere, but the key question is how this legal authority can be understood and established. To answer this question this book examines first what non-state rules are and how their legal authority can be measured, it then analyses how non-state rules are applied in different scenarios, including as the applicable law, as a source of law, or to interpret either the law or the contract. Throughout this analysis three other important questions are also answered: when can non-state rules be applied? when are they applied? and how are they applied? The book concludes with a framework and classification that leads to a deeper understanding of the legal authority of non-state rules.

Providing a transnational perspective on this important topic, this book will appeal to anyone researching international commercial law. It will also be a valuable resource for arbitrators and anyone working in international commercial litigation.

1 Introduction

Non-state rules in international commercial contracts

1.1The quest for legal certainty

Advancing technology and furthering economic globalisation have intensified international trade. Information technology helps businesses expand their market share without needing to establish a presence in other countries. Yet, whilst technology and a more intricate infrastructure facilitate international trade, there are still barriers to trading abroad. Small and Medium Enterprises (SME) can be reluctant to offer their services/goods across borders; partly because of the risks that a foreign and unfamiliar legal environment brings. Businesses need to be aware of different judicial procedures and regulations and they will be wary of any extra costs they might incur, for instance because contractual liability extends further than in their home country. This disproportionately affects smaller businesses that have fewer financial resources to mitigate these risks.

Legal harmonisation facilitates international trade; if the law is similar in different countries the legal consequences of doing business abroad are more predictable. Of course, commercial and contract law are not the only laws that affect cross-border trade: tax law, company law, and competition law among others also affect businesses. These areas are often more difficult to harmonise than commercial law as they are more closely connected with states’ public policy concerns. Whilst there are harmonisation efforts in these areas the results are (outside of the European Union) more modest.

The harmonisation of international commercial law occurs through international conventions and non-state rules (or soft law). Upon ratification international conventions become part of domestic law. The position of non-state rules is more diffuse and therefore further analysis is needed to understand how these accumulate legal authority. Non-state rules can be uncodified, such as trade usages and general principles, or they can be codified, such as restatements, model laws, and standard contract terms. They are created through spontaneous usage by the merchant community, or purposefully by (international) organisations.

The aim of this book is to improve understanding of how the legal authority of non-state rules in international commercial contracts can be measured. To this end Part 1 considers the general nature of non-state rules and argues that the most important way that the legal authority of non-state rules can be understood is through their application. As such Part 2 assesses the extent to which the parties to the contract can choose non-state rules as the applicable law of the contract. Outside of arbitration, only a few jurisdictions allow for the application of non-state rules as the governing law, but they can usually be included by reference in addition to a state law. Part 3 then analyses the application of non-state rules other than as the governing law of the contract. This part demonstrates that these rules are applied in various ways; as a source of domestic law, to interpret the contract or the law, and to fill in gaps in the applicable law.

Uncodified non-state rules (trade usages and general principles of law) are often sources of domestic law and are applied as part of the applicable law. In addition, it is shown that while codified non-state rules (such as restatements of law) usually have no standing as a source of law they are frequently used by courts as accepted international commercial practices and principles to interpret both the contract and the law, especially where there are gaps or conflicting laws, or to demonstrate that domestic law proposes the same solution as specific non-states rules. This enhances the legitimacy of domestic law as it shows its compatibility with accepted international commercial practices. Non-state rules are also used to demonstrate that domestic law is divergent from the international majoritarian approach; and in this way non-state rules have a potentially important role to play in furthering discussions on the development of domestic law.

Non-state rules play a key role in resolving international contractual disputes and also contribute to the harmonisation of international commercial law. The main focus of Part 3 is on application of non-state rules in state courts. In a way this is most relevant to assessing the legal authority of these rules because of the normative power of courts. By contrast, while arbitration plays a key role in international commerce, one might say that there is less legal authority in what is decided (and in the rules used to decide) because they have no normative power and there is no binding precedent. Nevertheless, arbitration is extremely important in international commerce and the various points made above on non-state rules do apply in arbitration just as they apply in litigation. So, this serves to further augment to at least some degree the authoritative role of non-state rules in international commercial law.

The book concludes that non-state rules assume various roles in the contractual relationship with different degrees of legal authority. They are used as contractual rules and as such their authority comes from the contract. They can be used as the governing law of the contract and their authority derives from private international law. They can be considered sources of domestic law and as such their authority comes from that law. They are used to interpret the law and the contract and derive their authority from their position as general principles and practices of international commercial law.

Non-state rules can thus (depending on the situation) be considered contractual rules; normative practices; rules of law (rules which have a normative value but are not law); or (domestic) law. Non-state rules gain in legal authority through their application, and this application can come in various different forms: sometimes as the governing law of the contract, but more routinely for instance as contractual rules, as a source of domestic law, to interpret the applicable law, and to interpret the contract.

The primary contribution of this book lies in providing greater clarity as to the legal authority of non-state rules. This fills various important gaps. Research on non-state rules frequently focuses on their application as the governing law, both in litigation and arbitration;¹ and whilst this is discussed here, the focus is on what this says about the legal authority of these rules. In addition, this focus on the question of legal authority takes this book beyond the discussion about the governing law of the contract. As indicated above, the book emphasises the various ways in which non-state rules are applied even when the non-state rules are not the governing law of the contract. There is a body of work, which focuses on how non-state rules shape and influence principles of commercial law and how they contribute to the creation of transnational legal orders.² There is only a limited focus on the question of the legal authority of non-state rules.³ Other work covers the use of non-state rules to establish an internationally accepted authoritative commercial law practice against which the authority of domestic law is measured⁴, how privately-made law gains authority despite lack of democratic accountability⁵, how codified non-state rules become part of the lex mercatoria⁶, or how the lex mercatoria develops into sector-specific authoritative legal practices.⁷ The analysis in this book contributes to this wider discussion by focusing precisely on the application to measure the legal authority of non-state rules.

Improving understanding as to the legal authority of non-state rules is not only an important contribution in relation to these rules but also adds to our understanding of legal harmonisation. The realisation that different legal regimes form a barrier against international trade has led to the creation of a body of transnational commercial law that either lowers or removes these barriers. Non-state rules are key to this development. They contribute towards creating a truly transnational body of commercial law and towards harmonising the principles underlying international commercia...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• Abbreviations
• Acknowledgments
• Chapter 1: Introduction: Non-state rules in international commercial contracts
• Part 1: The nature of non-state rules and how to measure their legal authority
• Part 2: Application of non-state rules as the governing law of the contract
• Part 3: How courts apply non-state rules
• Table of cases
• Bibliography
• Index