Dalhuisen on Transnational and Comparative Commercial, Financial and Trade Law Volume 1

The Transnationalisation of Commercial and Financial Law. The New Lex Mercatoria and its Sources

Jan H Dalhuisen

• Publisher: Hart Publishing
• Year: 2022
• ISBN:
  9781509949199
• Edition: 8
• Topic: Law
• Subtopic: International Trade Law
• Index: Law

"This is a big book, with big themes and an author with the necessary experience to back them up… Full of insights as to the theories that underlie the rules governing contract, property and security, it is an important contribution to the law of international commerce and finance." ( Law Quarterly Review ) Volume 1 of this new edition covers the roots and foundations of private law, the different origins, structure, and orientation of civil and common law, and the social and cultural forces behind it. It analyses the practical needs and market forces behind the emergence of a new transnational commercial and financial legal order, its international finance-driven impulses, concepts, and operation; the theoretical basis of the transnationalisation of the law in the professional sphere in that order; the autonomous sources of the new law merchant or modern lex mercatoria derived from the method of public international law, as well as its relationship to domestic and transnational public policy and public order requirements. The complete set in this magisterial work is made up of 6 volumes. Used independently, each volume allows the reader to delve into a particular topic. Alternatively, all volumes can be read together for a comprehensive overview of transnational comparative commercial, financial and trade law.

Part I

The Emergence of the Modern Lex Mercatoria, its Method, Structure and Antecedents. Civil or Common Law Thinking?

1.1.Introduction

1.1.1.The Place and Evolution of Modern Commercial and Financial Law in Civil and Common Law. The Concept of Transnationalisation

Commercial law, including financial law, has a long tradition with a somewhat different status in civil and common law. This has, first, to do with different attitudes concerning the role of legislation and particularly systematic legal thinking, but it is also a matter of coverage and ultimately concerns the recognition (or not) of the special place that commercial and financial law may have in either legal system. This discussion has acquired renewed relevance in modern times and is increasingly influenced or matched by the idea or realisation that, at least in international dealings or professional cross-border activities, however defined, the relevant commercial and financial law might not or no longer be national in either the civil or common law tradition, but rather emanates from a legal order of its own and may then be considered transnationalised.

The driving force behind this development is the globalisation of the commercial and financial flows, their volume, the organising talent of the international marketplace, but also the changing nature of these flows, which hardly allow them still to be meaningfully split up and allocated, in their different parts, to particular countries or territories and their legal systems in the hope that these parts together add up to adequate legal support for the activity as a whole. In the meantime, much of it is becoming virtual or in flux and in transformation to allow us credibly to determine relevant territorial contact and legal connection, but it still leaves us with the questions of how this new transnationalised and unified law operates and can be known and should be applied and whether we must perceive it along civil or common law lines, or as something different altogether.

In approach (although not in substance), this legal transnationalisation goes back to an era before the nineteenth century when commercial law was indeed not national and did not belong to any particular legal order or system except its own. These issues will be substantially the subject of this first Volume, followed by dispute resolution in Volume 2. In Volumes 3 and 4, the discussion will be narrowed to contract and movable property law as it is developing in the transnationalised professional sphere or global (commercial and financial) legal order. In Volumes 5 and 6, the discussion will be extended to international financial dealings in their private law and regulatory aspects. In this discussion, international finance is considered often to be the more immediate focus of present-day international commercial activity rather than the more traditional mercantile aspects often associated with the sale of goods, their transportation and insurance, bills of lading, bills of exchange or promissory notes, and letters of credit, important as they may remain.

To demonstrate what is at issue, an example, more directly related to modern commerce, may suffice: Assume that a car manufacturing company buys iron plates from Sweden, tyres from France, starts part assembling in Spain, adds electronic parts bought from Germany, and further equipment coming from the US, and then assembles the final product in Italy. Subsequently, these cars are distributed in virtually every country in Europe. Upon a sale there will be a receivable and upon payment a bank balance for the seller in whatever country of payment. Simultaneously or consecutively, this process repeats itself all the time. It is marked by a flow of assets in constant transformation from commodity to end product to receivables, sales proceeds, and bank balances, joined by services, often delivered on the web, or types of technology and information supply or instructions that are also increasingly virtual. Until sold as end product, these assets are no longer individualised but appear and are transferred in bulk and are, when traded, often future or prospective. Through derivatives, they may be separated from risk. Much is located nowhere in particular or not for long. The key is the economic unity of the cycle.

The value is then exactly in these flows, their composite nature, and their constant transformation to higher quality products. Once the asset comes to rest with a consumer, is individualised and unpacked in a particular place, it is second hand and substantially loses its value; indeed, there is no greater value destruction than unwrapping under the Christmas tree. This is of legal significance as, with the loss of value, the asset is likely to become legally unimportant even if it may still have sentimental value. The exception are objects of art and real estate, which, by their very nature, are individualised and remain outside these flows; art and similar objects of value may then be treated in much the same way as land.

It is submitted that in order for us to remain legally relevant in our legal assessments in commerce and finance, we must now place ourselves firmly in these international flows and respect their integrity and state of transformation and movement, often between countries. This has not been the legal attitude since the nineteenth century. First the assumption here is that all law is national and thus also governs international transactions assessed or allocated per country as there is no other. In this view, the international flows must and can still be satisfactorily cut up into domestic pieces under the prevailing rules of private international law (different even for contract, property and enforcement), which provide in this approach the conduit to finding the most appropriate national legal system to apply to each part. Second, at least in civil law, these national systems commonly concern themselves only with situations at rest, while the proprietary system, in particular, is perceived as physical and based on the idea of individualisation, identification and location of existing finalised assets (the Bestimmtheitsprinzip in German) under national laws only. Third, the expectation is then that all these local laws, applied to parts of the flows so identified, still add up legally to cover and guide the international transaction chain in an adequate and efficient manner even if nothing of this was ever written or conceived for international transactions.

This was perhaps worked in a fashion when international transactions were few and concentrated on finished physical products but now that the total value of the international flows far exceeds the GDP of even the largest countries,¹ whilst constant transformation in international production, supply and distribution chains is the essence of these flows which can hardly any longer be localised or at least not for long, this approach is artificial and likely to be insufficient. It is also irrational. In any event, it may be cogently argued that in the law we are only concerned with rights and obligations, there was never anything physical about them, not in property law either, while in international transactions rights and obligations were always difficult to locate and are ever more difficult to situate now. In fact, the idea of localisation had already broken down where assets were not physical like claims, but they are now joined by services, technology, and other information when there may be no obvious connection with any particular territory, situs, or state law.²

One sees the problem arising in particular when financing is needed for this type of international manufacturing and distribution activity which needs to be funded and here the financial aspect comes in its support function which is crucial to this entire cycle. Can a flow of assets in transformation be given as security for working capital? Not easily in an approach which sees all law as territorial by definition and all assets as physical and individualised unless perhaps one puts the location of all assets in the place of the owner. That would be no less contentious and still raises enforcement issues when assets are dispersed. Rather transnationalisation and the rediscovery of more universal laws help us and that is the challenge that is addressed in this book.

This challenge operates at the level of methodology but no less at that of the positive law including public policy, not in the future but now. There are two prongs to the argument. The first one is historical and philosophical. This suggests that the paradigm shift on the European Continent at the beginning of the nineteenth century which led to the nationalisation of all law formation and operation at the level of the state was an aberration in need of correction, at least in private law in commerce and finance. The other consideration is practical and goes to show that following the globalisation of the commercial and financial flows, legally still splitting them up in domestic parts, becomes irrational while no proper policy reason can be given except merely reaffirming the established nationalistic order. Legal transnationalisation is not here perceived as an option any longer but is considered the result of globalisation on the scale we now expect and need to keep up our welfare. It becomes an issue of efficiency.

It poses the question how and by whom this new transnational law is formed, how it operates, and how it can be known. It is submitted that on the private law side, in commerce and finance, this concerns the re-emergence of the lex mercatoria in a new transnational legal order which is not national or territorial and results in immanent or spontaneous bottom-up law formation in that order in which (a) fundamental principle, (b) custom and practices, (c) treaty law, (d) general principle, and (e) party autonomy play the defining roles. This is reminiscent of a similar approach to law formation in public international law, see Article 38(1) of the Statute of the International Court of Justice together with the notion of peremptory law of Article 53 of the Vienna Convention on the Law of Treaties, and reintroduces the unity in law formation and application in both areas that obtained, as we shall see, until the nineteenth century.

As will be argued in section 1.1.6 below and throughout Volumes 3 and 4, at the practical level, this new law introduces and supports the idea that professional dealings are to be distinguished, see also section 1.1.10 below, and that in these dealings the law of contract and movable property acquires a different meaning and model altogether. They both become dynamic concepts (better) able to deal with constant change and movement and are then principally risk management tools in which intent in the case of contract and individualisation of assets in movable property law become secondary considerations. It will be shown that this is closer to common law than to civil law perceptions and that the latter was always more anthropomorphic, geared to private individuals or natural persons, and their needs for protection in what we now call consumer law, whilst the common law of contract and movable property came from commerce and is therefore more business oriented, more comfortable with party autonomy even in the creation of proprietary rights (in equity), as we shall see, and probably also more creditor than debtor friendly. More uncertain may be the identification of the public interest, now often expressed in regulation, as a motivating and correcting force in the international marketplace and the formulation of transnational minimum standards, for example in competition, environmental, public health, and financial stability matters.³ Here the absence of institutions such as states (or their courts) to stabilise this law and push it forward, as they may do domestically, is more problematic.

Of course, the formulation of these standards can still be the subject of treaty law assuming there is a broad international consensus, but there may not be or it may be long in coming. It may be poorly expressed (a result of trade-offs or compromises and different authorised languages) and is difficult to adjust. It must then essentially be left to the public debate in civil society what the minimum standards are (the EU for its Member States becoming here an exception but only in the areas where it has jurisdiction). Only when international transactions come demonstrably on shore and can still be so verified in conduct or effect, remains local public policy relevant but that might not be satisfactory for the international transaction as a whole. The role and formulation of public policy at the transnational level, particularly transnational minimum standards of behaviour to balance the international marketplace, are perceived in this book as the greatest challenge in transnational law formation and operation. What balances the international marketplace and how? We may see it even now best in the operation of international social networks. Environmental and public health standards may not be far behind.

It will be argued that in pressing cases these considerations might also be joined by extra-legal (transnational) demands of justice, social peace and efficiency. The idea is here that law imposes order in an often irrational environment with many opposing interests, that its formation and application is internationally in essence a bottom-up process even if it may be stabilised by public authority and courts, and perhaps now also in international arbitration (the subject of the next Volume), not different in commerce and finances, but strives in civil society also for greater justice, social peace and efficiency, in commerce especially the latter which may conflict with the former when a proper balance must be found and the public at large may intervene, for example in competition cases. That is another aspect of the public good and the challenge is how this must be perceived and works out in a globalising environment, assuming always that globalisation will continue.

In practice, in dispute resolution, international arbitrators might here increasingly be asked to function as major spokespersons for this new order, but they are not law makers proper, a function which cannot truly be privatised in this manner. Such a role is thus limited and increasingly contested especially in foreign investment, as we shall see,⁴ but it raises an issue whenever the public interest is at stake. It might also be an issue when third-party rights, like in the assessment of proprietary rights, need to be determined especially relevant in terms of ranking and preferences amongst creditors—in civil law itself often considered a public policy matter. Much work in this regard may be done in the large in-house law departments of international companies that manage legal risk on a daily basis, see for the law in action also section 1.4.18 below. They must make the business work from a legal point of view and then also consider the public interest in its international ramifications as it evolves in the international flows and concerns, as just mentioned, foremost the world of emerging transnational minimum standards.

Again, to the extent international transactions come demonstrably onshore, assuming this can still be identified in conduct and effect, local regulatory laws and values remain important (or within the European Union its public policy standards in areas of its competency). It was already noted that they may conflict, not in the least also with emerging transnational standards and may as such inhibit the international transactions in contradictory manners. As will be explained throughout, participation in globalisation and its benefits is not a one-way street and will require states who want the benefits for their subjects to adapt increasingly to these international minimum standards and support them, assuming they can be sufficiently identified.

Whatever these complications and challenges, to the extent that commercial and financial law is still considered in essence national, therefore in particular in domestic transactions or in international transactions when still cons...

Table of contents

• Cover
• Dedication
• Title Page
• Preface
• Contents
• Table of Cases
• Table of Legislation and Related Documents
• Part I The Emergence of the Modern Lex Mercatoria, its Method, Structure and Antecedents. Civil or Common Law Thinking?
• Part II The Nature, Status and Function of Private International Law
• Part III The Substance and Operation of Transnational Commercial and Financial Law or the Modern Lex Mercatoria
• Index
• Copyright Page