Transnational Commercial Law

Maren Heidemann

• Publisher: Hart Publishing
• Year: 2018
• Print ISBN: 9781137605184
• eBook ISBN: 9781509958559
• Edition: 1
• Topic: Diritto
• Subtopic: Diritto commerciale

Transnational Commercial Law is a textbook that deals predominantly with substantive legal contract rules that apply across borders and are designed to govern cross-border business transactions. This is an emerging field of research, teaching and practical interest in international trade and commercial law, requiring reference to multiple areas of law, including both private and public international law, the law of specific commercial transactions and arbitration. For the first time Transnational Commercial Law combines all these relevant issues in one book, and provides a basis for further study as well as detailed, cutting edge academic analyses. It provides a compact yet accessible guide to the most important cornerstones of this evolving legal discipline. Transnational Commercial Law is aimed primarily for use on LLM courses and master's programmes in commercial law. Students are presented with the actual contractual rules in the wider context of the general legal framework, and situates it within the theoretical debate, providing a truly international perspective on transnational commercial law in a globalised world.

PART I

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Transnational Commercial Law and Its Sources

INTRODUCTION

I.1 SETTING THE SCENE

A few case scenarios taken from decided cases may serve to illustrate the selection of topics covered in this book and the significance of the subjects covered in Part 1.

I.1.1 Cross-Border Trade

Some problems arise specifically from cross-border trade as opposed to purely domestic dealings, as set out in this section. Others arise from the transaction being commercial rather than private, as explained in Section 1.2.

I.1.1.1 State and Non-State Law

Channel Tunnel Group was a consortium of English and French construction companies formed to build the Channel Tunnel under the English Channel connecting the UK and France. A dispute arose in respect of the cooling system. As it turned out, the cooling system needed to be extended up to the tunnel entrances in a different manner than originally envisaged. The contract provided for variations to the original orders placed with the contractor consortium. The parties discussed and agreed the technical specifications according to the variation clauses but failed to agree the price for the extra work. This is how the disagreement started. The employer consortium insisted on a figure that differed by more than forty million pounds in value from what the contractors had originally claimed. The contractors threatened to stop work on the cooling system unless they were paid what they thought was the right amount. The contract forbade the suspension of work as a means of dispute settlement and provided for a joint board to decide such questions. This board was not consulted in the event. The employers considered the contractors to be in breach of contract and sought to obtain an injunction from the British courts¹ to prevent the contractors from suspending work on the cooling system. The contract between the French and British parties specified the law applying to disputes arising from it to be ‘Principles common to English and French law’. It further stipulated that matters had to be decided by arbitration prior to resorting to court proceedings. Would the British courts enforce these clauses (Chapter 12)? Would the courts set the price for the parties (Chapters 8 and 9)? Why did the parties to this contract not choose either English or French law? Why would their choice be desirable? What does it entail, and is it valid? What happens if it is not a valid choice (Chapters 6, 7, 11 and 13)?

I.1.1.2 State Parties

An English company signed a long-term contract for the construction and maintenance of an oil production facility in a Middle Eastern country. The contract was signed by representatives of the English company and by representatives of a state agency of the Middle Eastern state. After a couple of years, the state party stopped payments. The English company sought to obtain a court judgment to confirm the debt owed and to collect payment.² The contract stipulated that ‘principles of natural justice’ should apply to the agreement. What law applies to the contract? Which court can the English company turn to for settlement of the dispute? How can a court decision be enforced? Is there anything different about state agencies as contractual partners? (See Chapters 6, 10 and 11.)

I.1.1.3 Export Prohibitions

In Iran Continental Shelf Oil,³ the seller of specialised oil production equipment was a Delaware company with their head office in the United States (US). Direct purchase from a US enterprise of parts required to repair an Iranian oil rig was prohibited by the government of Iran. Therefore, the Iranian buyer and the US seller had expressly agreed to effect the supply of goods and services from the US to Iran through the seller’s office in Sevenoaks, England. After the parties had concluded the contract, the US president issued a decree prohibiting the export of the goods from the US to Iran. Under English law, neither of the prohibitions had any effect. But would the courts support this obviously intentional circumvention of the export bans? Which courts would decide the case? Which law is applicable to this dispute? (See Chapters 7, 11 and 12.)

I.1.2 Merchant, Consumer and Commercial Law

A father and son owned a German private limited company (GmbH) called S. In 1997, S obtained a loan from the German State of Mecklenburg-Vorpommern as part of a public programme of support for small businesses in deprived areas of the country. The loan of over two million German marks was handed out to S through the state bank, Landesbank. In order to secure the loan and increase commitment from the father and son team, the bank obtained a personal guarantee from the sole managing director and shareholder of S: the father, as well as from the son, who owned the majority of the shares. They both signed the guarantee for the loan, personally. When the S GmbH defaulted and went into liquidation in 2001, the bank demanded payment of 50,000 euros from the father under the personal guarantee. The father refused to pay, claiming that vital rules of consumer credit law had been broken⁴ and that the guarantee was invalid and unenforceable. The court of first instance decided in favour of the father, whereas the court of second instance found in favour of the bank. The German Federal Court Bundesgerichtshof (BGH) eventually reversed the second instance decision and confirmed the position of the father.⁵

This case illustrates well the concepts of trader, merchant and consumer and the legal significance of the distinction. The father manager signed the contract of guarantee personally, not in his capacity of manager and agent for the S GmbH. He was therefore held to be entitled to rely on consumer protection rules in respect of loans (consumer credit), which were contained in section 491 of the German Civil Code (Buergerliches Gesetzbuch, or BGB) at the time of the Federal Court decision. The creditor bank argued that the father should have been regarded as a merchant as shareholder and director of the S GmbH, a merchant company. The BGH ruled that the merchant status of the GmbH did not extend to the father as a private individual. The enhanced knowledge and skills potentially acquired by the father in the course of his business could not make him a merchant under German law, sections 1 and 2 of the Commercial Code, Handelsgesetzbuch (HGB), as argued by the bank and the second instance court. The father was also not deemed to have acted ‘in the course of his business’, thereby making him a trader according to sections 13 and 14 of the BGB, though the bank expressly wanted the father and son to act as private individuals. The father would have acted as an agent for his company had he signed ‘in the course of his business’ and so would not have personally become party to the guarantee agreement.

Germany is one of many countries around the world which entertains a separate merchant law in addition to special consumer law. The UK does not know such a distinction (see Chapter 1, Section 1.1.3.). UK courts may have come to the same conclusion in this case, though, based on the doctrine of privity of contract and the recognition of incorporation and the entity doctrine (see Chapter 10, Section 10.2.4.). Germany and the UK (at this point in time⁶) share the same rules on consumer credit law through membership in the European Union (EU), which has harmonised this area of law. Are there internationally harmonised rules on commercial law? (See Chapters 1–5, 8 and 9.)

I.2 THE STRUCTURE OF PART 1

This latter case in Section 1.2. shows that business is subject to special rules compared to general and consumer contract law. Part 1 explains why this is the case and what these specialised rules are in a cross-border context. The case scenarios in Section 1. illustrate some of the many specific challenges faced by cross-border traders. In Part 1, the theoretical concepts which form the current legal landscape for transnational commerce are explained. Part 1 introduces the actors, institutions and sources of law, which are set into a context with decided cases in Part 2. It starts with an explanation of the history and role of merchant law and world trade law in Chapter 1. Chapters 2 to 5 introduce the available sources of law as suggested in the Channel Tunnel case in Section 1.1.1., their origin, nature and hierarchy. They explain who makes these laws and the significance of their origin, and they describe the individual rules, lawmaker and institutions of dispute settlement and enforcement. Chapter 6 sets out to navigate through one of the most controversial aspects of transnational commercial law: non-state law and the notion of the so-called lex mercatoria. Chapter 7 introduces the most important tool in transnational commercial law, the conflict of laws or private international law (PIL). It offers a glossary of PIL and a concise introduction to its key concepts. The chapters of Part 1 thereby offer the possibility of referring to many components of transnational commercial law in one place rather than working through a multitude of specialised treaties on an array of subjects that are often considered to be unrelated to each other, each requiring much more in-depth treatment. While the latter is undoubtedly true, it is submitted here that the advancement of modern commercial law is helped by underpinning and encouraging a broader view on each aspect of cross-border trade by drawing its wider context closer together.

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¹ Channel Tunnel Group Ltd and Another v Beatty Construction Ltd and Others [1993] 2 W.L.R. 262; [1993] A.C. 334. See Chapter 12.

² ICC case No. 7110, ICC International Court of Arbitration Bulletin 39 (1999). Parties often remain anonymous in arbitration case reports. See Chapter 11.

³ Iran Continental Shelf Oil Company v IRI International Corporation [2002] CLC 372. See Chapters 7, 11 and 12.

⁴ The contract did not specify the total amount owed and the effective annual interest rate.

⁵ BGH Case of 8. November 2005, Reference XI ZR 34/05; BGHZ (BGH Reports of civil cases, volume) 165, 43. Parties remain anonymous in German case reports.

⁶ February 2018.

CHAPTER 1

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Defining the Subject Matter

‘Transnational commercial law’ as a term is not self-explanatory. It has not yet become a technical term in legal scholarship and practice. This first chapter therefore explains what the term means and what the subject matter of this book comprises.

1.1 TERMINOLOGY

1.1.1 Transnational Research in Law and Other Disciplines

The term ‘transnational’ is used in connection with many different branches of the law as well as by other disciplines, such as sociology, philosophy and politics. Each of these disciplines seeks to provide answers to questions generally arising in our ‘globalised world’. Enquiries range from general questions of justice in the area of poverty, human rights and the situation of individuals to political interaction among governments and international organisations, both state and non-governmental, and general enquiries into legal theories and the philosophical origins of the law. The expression ‘transnational law’ is used in connection with contract law and adjudication but also with public international law, corporate law and regulation.¹ Perhaps one of the most active enquiries into transnational contexts has been made in connection with transnational corporate governance.² This is to be understood in a variety o...

Table of contents

• Cover
• Title Page
• Title Page
• Title Page
• Copyright
• Dedication
• Contents
• Introduction – How to use this book
• Part I: Transnational Commercial Law and Its Sources
• Part II: Transnational Commercial Law in Action
• Bibliography
• Index