1. The concept of transnational commercial law was pioneered by Professors Berthold Goldman, Clive Schmitthoff and Aleksander Goldstajn in the early 1960s. There is now an enormous literature on the subject.

2. See Ole Lando, “The Lex Mercatoria in International Commercial Arbitration” (1985) 34 I.C.L.Q. 747, 748 et seq.Google Scholar

3. See infra n.19 and p.16. For a masterly comparative survey of the whole field of transnational commercial law see Filip De Ly, International Business Law and Lex Mercatoria.

4. Supra n.2.

5. In which are included formulations of general principles prepared by scholars and issued by an international organisation, such as the Principles of International Commercial Contracts published by Unidroit and the Principles of European Contract Law prepared by the Commission on European Contract Law.

6. The two terms are nowadays used interchangeably, and for brevity are hereafter referred to as “usages”. But see infra, n.20.

7. This is the theory of the common law, but it is recognised that in reality the existing law represents a framework within which the judge has a limited power to create law.

8. See infra p.19.

9. See infra pp.8 et seq.

10. See Art.1 (1) and the various arts. (Arts.13, 14, 16) referring to generally accepted rules, usages and accepted standards of international practices; and, for a general discussion, Rafael Illescas-Ortiz, “International Demand Guarantees: the Interaction of UNCITRAL Convention and the 458 Rules of the CCI”, an as yet unpublished paper presented at the 8th Biennial Conference of the International Academy of Commercial and Consumer Law at Bar-Ilan University, Israel, Aug. 1996.

11. See infra p.17.

12. See ibid.

13. See infra pp.30 et seq.

14. Statute of the Staple, 27 Ed. III, stat. 2 (1353) cc. 5, 6, 8 and 21.

15. E.g. the ICC Rules of Conciliation and Arbitration. Art.13(3).

16. Since, while a national judge is obliged to apply the conflict rules of his own jurisdiction as the lex fori, there is no particular nexus between an arbitrator and the place or seat of the arbitration and thus, on one view, no arbitral lex fori. However, views remain divided on this question. See further infra p.27 as to international trade usage and the conflict of laws.

17. See infra p.28.

18. See infra p.24.

19. The term “unwritten” is here used to denote a principle or rule that has not been reduced to writing, whether in binding form (such as a judicial decision, statute or convention) or in non-binding form (such as private codification or scholarly or mercantile publication).

20. The subject of trade usage and custom is bedevilled with problems of linguistic ambiguity. Usage is sometimes used to denote practice or behaviour, sometimes to indicate a pattern of behaviour which has risen to the level of a norm. It has been traditional to distinguish custom from usage, but the distinctions have been drawn in widely differing ways. E.g. according to some authorities custom is the practice of a particular locality, usage the practice of a trade, profession or vocation. Others consider that usage is merely a pattern of behaviour and that custom is the application of the usage from a sense of binding obligation. Others again divide custom into different categories, according to the degree of their antiquity or universality. The modern approach is to treat the two terms as interchangeable. In transnational commercial law the term “usage” or “usages” is that generally adopted; in international law the reference is usually to custom. For convenience, “usage” is the term adopted in this article to denote a settled practice which has acquired normative force and is thus equated with custom. But since “usage” does not have an adjectival form, reference will also be made to customary law or customary rules of law. Mere repetitive behaviour will be referred to as such or as practice.

21. General Reinsurance Corp. v. Forsakringsaktiebolaget Fennia Patria [1983] Q.B. 856, 874(per Slade LJ).Google Scholar

22. [1989] Q.B. 728.

23. A fairly dramatic finding, given that the amount of the demand was US$292 million! In the end, the US regulatory authorities agreed to authorise the transfer, thus obviating the need for an appeal against the decision.

24. See generally Michael Akehurst. “Custom as a Source of International Law” (1974–1975) XLVII B.Y.I.L. 1Google Scholar; G. M. Danilenko, Law-Making in the International Community, chaps.IV and V; van Hoof, G. J. H., Rethinking the Sources of International Law, chap.VI; Karol Wolfke, Custom in Present International Law (2nd revised edn).CrossRefGoogle Scholar

25. See supra p.8.

26. An alternative approach is to think in terms of the sanctions that the relevant sector of the mercantile community would consider an aggrieved party entitled to exact if the usage were not observed. But this would be appropriate only for usages governing performance, not those relevant to the interpretation of contract terms.

27. Jeremy Bentham considered the common law to be “a fiction from beginning to end” (Collected Works, Vol.IV, p.483). Ewart (he of estoppel fame) took the same view of the law merchant, conceived as a body of law, in his splendidly iconoclastic article “What is the Law Merchant?” 3 Col.L.Rev. 135 (1903)Google Scholar. See also Simpson, A. W. B., “The Common Law and Legal Theory”, in Oxford Essays in Jurisprudence (2nd series, ed. Simpson, A. W. B.), who favours the approach taken by Blackstone that the common law is a system of customary law. The question is less meaningful in public international law, where there is neither compulsory recourse to adjudication nor the expectation of adjudication.Google Scholar

28. For a sophisticated theory based on a distinction between a practical judgment as to what would be a desirable pattern of conduct to be adopted as an authoritative rule and a practical judgment that such a pattern has been adopted warranting treatment as an authoritative rule, see John, Finnis, Natural Law and Natural Rights, pp.238 et seq.Google Scholar

29. See infra pp.15 et seq.

30. Either geographical (as in the case of a commodities market) or organisational (as in the case of the financial markets).

31. See further infra p.16.

32. “The New Lex Mercatoria: The First Twenty-five Years”, in Martin, Bos and Ian, Brownlie (Eds), Liber Amicorum for Lord Wilberforce, chap.11, at pp.174–177.Google Scholar

33. Bankers Trust Co. v. State Bank of India [1991] 2 Lloyd's Rep. 443. See now UCP, Arts.13(b), 14(d)(i), allowing a maximum of seven days.Google Scholar

34. UCP, Art 15.

35. Banque de I'Indochine et de Suez SA v. J. H. Rayner (Mincing Lane) Ltd [1983] Q.B 711.Google Scholar

36. See Danilenko, op. cit. supra n.24, at pp.16–22.Google Scholar

37. Bonell, M. J., “The UNIDROIT Principles of International Commercial Contracts and the Principles of European Contract Law: Similar Rules for the Same Purposes?” (1996) II Uniform L. Rev. 229.Google Scholar

38. The transition may, ofcourse, raise intricate questions as to whether at a certain point there are two competing usages in operation or alternatively none at all.

39. UCP, Art.6(c).

40. Trans. by Stanley S. Jados (1975).

41. Which was. for each transgression, to be tied and dunked in the ocean three times while held by a rope (Art.170).

42. Art.47, dealing with the duty of a patron to give certain information publicly to prospective investors.

43. Arts.48, 89, 90, 102, 194.

44. Arts.48, 89.

45. Arts.50. 51 (no liability of shareholders to pay an additional sum to the patron for constructing a vessel larger than agreed).

46. Arts.61, 69.

47. Arts.66, 262, 282.

48. Art.85 (inability of merchant to ship cargo by reason of sale to a third party).

49. Arts.206, 255.

50. Arts.241, 256, 287.

51. Art.293.

52. Some of the rules of the sea were of long standing. The 12th-century Sea-Laws of Oleron, for example, decreed that if a pilot failed to exercise due skill in bringing a vessel to port and was not able to make satisfaction he should lose his head. Three hundred years later the option of giving satisfaction had apparently disappeared; instant decapitation was the price of failure.

53. E.g. the Vienna Sales Convention, Art.79.

54. E.g. the Unidroit Principles of International Commercial Contracts and the Commission on European Contract Law Principles of European Contract Law.

55. As to which see the citations supra n.24 and the North Sea Continental Shelf Cases, 1969 ICJ Reports 3.

56. See the citations Ibid.

57. It should be borne in mind that we are not here talking of interpretation of a convention or codification, for which reference to travaux préparatoires would normally be inadmissible unless the text to be interpreted was ambiguous or would lead to a manifestly absurd or unreasonable result (see e.g. the Vienna Convention on Treaties. Art.32), but its relationship to pre-existing usage, which cannot be determined solely from the text of the convention or codification itself except in those cases where it is expressed to be declaratory of existing usage.

58. (1990) XX I.C.C.A.Y.B. 70; Jarvin, et al. Collection of ICC Arbitral Awards, Vol.II, p.223.Google Scholar

59. A point developed infra pp.28–29.

60. See John, Honnold, Uniform Law for International Sales (2nd edn), paras.250–252. Professor Honnold comments (in para.250): “In the UNCITRAL proceedings it was possible to make the rules on examination of goods more flexible and consistent with current commercial practice.”Google Scholar

61. Mr Khoo (Singapore) at the 16th meeting; Mr Inaamullah (Pakistan) at the 21st meeting. See John, Honnold, Documentary History for the Uniform Law on International Sales, p.542, para.51, p.566, para.6.Google Scholar

62. Whether in public international law a treaty may be displaced by subsequent State practice is highly controversial. See the citations supra n.24.

63. As was the case on the provisions of ULIS for automatic termination of the contract on a fundamental breach.

64. See Villiger, Mark E., Customary International Law and Treaties, p.164.Google Scholar

65. See the note by Yves Derains (1995) Clunet 1020, criticising the award in ICC case no.6754 of 1993.

66. See Christine, Chinkin, Third Parties in International Law, chap.3.Google Scholar

67. Supra n.32.

68. An approach supported by the Resolution on Arbitration in Private International Law prepared by the XIVth Commission of the International Law Association and approved at its meeting in Amsterdam in 1957. However, a resolution adopted at the 1992 meeting of the Association in Cairo declared that the fact that an award was founded on transnational rules (general principles of law, principles common to several laws, international law, trade usage, etc.) should not by itself affect its validity if the parties (1) had agreed that the arbitrators might apply transnational rules or (2) had remained silent concerning the applicable law.

69. Art.13(3) of which provides that “in the absence of any indication by the parties as to the applicable law, the arbitrator shall apply the law designated as the proper law by the rules of conflict which he considers appropriate”. Even in English law. which has tended to take a restrictive view of the powers of arbitrators, the courts have accepted that the references to “law” and “proper law” in Article 13(3) embrace rules of law or general principles of law and do not require the application of a particular national law. See n.74 infra.

70. Since this is generally taken to require reference to a legal system. However, if it be the case that arbitrators are not bound to apply the conflicts rules of the seat of the arbitration or, indeed, the conflicts rules of any particular national legal system (which is the position taken here), then it would seem to follow that they are not obliged to apply the Rome Convention, even if sitting in a Convention State. They are. however, obliged to respect rules of international public policy. For a masterly analysis of this complex topic see Pierre Lalive, “Transnational (or Truly International) Public Policy and International Arbitration” in Comparative Arbitration Practice and Public Policy in Arbitration (ICCA Congress series no.3) pp.256 et seq.Google Scholar

71. The legislation of several jurisdictions now expressly confers the power to do this. See infra.

72. Whether the arbitrator can choose the lex mercatoria as being itself the applicable law s i a separate question, discussed infra.

73. The question which States are relevant is not discussed here.

74. See e.g. the landmark decision of the English Court of Appeal in Deutsche Schachtbau- und Tiebohrgesellschaft mbH v. R'As al-Khaimah National Oil Co. [1987] 3 W.L.R. 1023. upholding an award in which the arbitrators, under an agreement to arbitrate held to be governed by and valid under Swiss law. applied “internationally accepted principles of law governing contractual relations” to determine a dispute arising under an oil exploration agreement.Google Scholar

75. It is thus surprising that in SPP v. Arab Republic of Egypt, ICC case no.233 of 1992, the arbitral tribunal found that Egyptian law did not furnish an answer to the question from what date interest should run, so that this had to be resolved by reference to international law, a ruling described by Professor Gaillard as “si caricatural qu'il suffit à discréditer la méthode” (Emmanuel Gaillard, “Trente ans de Lex Mercatoria” (1995) Clunet 5,13).Google Scholar

76. Consider e.g. a dispute between multinationals over a pipeline running through six different countries.

77. Only the last two are in my view illegitimate, the one because having found the applicable law the arbitrators have norightto disregard it merely because they think another rule s i better, the other because the parties should not serve as cannon fodder for an arbitrator's personal crusade.

78. For a powerful attack on conflicts scholarship and its dedication to the concept of an applicable national law in every case see Frederick K. Juenger, “American Conflicts Scholarship and the Law Merchant” 28 Vand.J.Trans.L. 487 (1995).Google Scholar

79. See Berger, K. P., International Commercial Arbitration, who argues persuasively (at p.561) that there is usually no way of knowing the exact reason for the omission of a choice of taw clause, so that it is dangerous to deduce from this an intention to be governed by the lex mercatoria.Google Scholar

80. See e.g. the protracted and ultimately unsuccessful attempts in Austria and France to upset the award in the celebrated Norsilor case (Pabalk Ticaret Sirketiv. Ugilor/NorsilorSA, ICC case no.3131 of 1979): and, for a general discussion, David W. Rivkin, “Enforceability of Arbitral Awards Based on Lex Mercatoria” (1993) Arb.Int. 67.Google Scholar

81. See the discussion in Craig, Park and Paulsson, International Chamber of Commerce Arbitration (2nd edn) pp.603–609.

82. See supra p.10.

83. See supra p.16.

84. Why arbitrators should want to do this is discussed supra, p.30.

85. See Schmitthoff, Clive M., Interpretation and Application of International Trade Usages, a study prepared for the ICC.Google Scholar

86. That is not to say that national law has nothing to say about it. See e.g. s.62(2) of the UK Sale of Goods Act 1979, which expressly preserves in relation to contracts of sale of goods “the rules of the common law, including the law merchant”.

87. New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Art.V(l)(c).

88. It is the need for controls of this kind which makes the concept of a lex loci arbitri indispensable and is the most powerful argument against the notion of delocalised arbitration. Accordingly the provisions of art. 177 of the Belgian Code Judiciaire depriving Belgian courts of the power of judicial review where neither party is a Belgian national are particularly unfortunate.

89. See e.g. Art. 1496 of the French Code of Civil Procedure, supra p.32.

90. “International Business Law: A New Law Merchant” in Clive M. Schmitthoffs Select Essays on International Trade Law (ed. Chia-Jai, Cheng) 20 at p.33.Google Scholar