Are the roots of the modern 'lex mercatoria' really medieval?

AuthorVolckart, Oliver
  1. Introduction

    The modern lex mercatoria is a set of rules of conduct for border-crossing transactions developed autonomously by the international business community and applied by arbitrators in case of trade disputes. Commonly, lawyers and economists writing about the new lex mercatoria claim that there was a "medieval lex mercatoria," too. According to them, the origins of the lex mercatoria go back to the high Middle Ages, that is, to the time between the tenth and thirteenth centuries when commerce rose from being almost nonexistent to being an important factor of economic development. This, it is alleged, was only possible because at that time, traders developed a law merchant similar to the modern lex mercatoria, whose forerunner it was. Formulations characteristic of this view are given in the following three paragraphs.

    "The crucial period of change was the late eleventh and twelfth centuries. It was then that the basic concepts and institutions of modern Western mercantile law - lex mercatoria ('the law merchant') - were formed, and even more important, it was then that mercantile law in the West first came to be viewed as an integrated, developing system, a body of law" (Berman 1983, p. 333).

    "The fear of a proliferated Law Merchant has led to the growth of a 'new' Law Merchant, closely resembling its medieval forefather" (Trakman 1983, p. 39).

    "International law is still largely independent of nationalized legal systems, retaining many of the basic (though modernized) institutional characteristics of the medieval Law Merchant" (Benson 1992, p. 2).(1)

    Similar statements can be found in almost every work about the modern lex mercatoria.(2) Still, there are differences in detail. While Benson and Berman emphasize the universal and objective qualities of what they call the "medieval lex mercatoria," authors like William Mitchell, Ian F. G. Baxter, Felix Dasser, and Uwe Blaurock concede that between the tenth and the thirteenth centuries, there were important regional differences concerning the way commercial transactions were conducted.(3)

    The purpose of this article was to analyze whether and possibly to what extent the modern lex mercatoria originated in the high Middle Ages. We compared the institutional framework(4) of medieval trade with the modern lex mercatoria in order to indicate similarities and differences between the modern conditions of border-crossing transactions and the so-called "medieval lex mercatoria." Initially, we describe the present conditions of international trade and the modern lex mercatoria (section 2). Subsequently, the problems medieval merchants faced and the institutions they developed to solve them are analyzed. In section 3, we continue by describing Dark-Age conditions of trade. Regarding the high Middle Ages, we need to distinguish the tenth and eleventh centuries, when guilds played a major role in long-distance trade (section 4), from the twelfth and thirteenth centuries, when towns were decisive in regulating transactions (section 5). In the concluding section (6), the modern lex mercatoria and the medieval commercial codes of conduct are compared and final conclusions drawn.

  2. International Trade Under Modern Conditions

    International Trade in the Twentieth Century

    The international system, with its numerous sovereign nation-states, each having its own legal order, cultural communities, and currency, forms the background of border-crossing transactions. International business is taking place between noncompatriots, and "international transactions make contact with a multitude of legal systems and with the monopoly of power claimed by each state within her boundaries. Collisions of norms and gaps between different norm systems then appear, an accord in decisions is often coincidental, and the assistance of the judicial and penal institutions in foreign countries is not at all a matter of course" (Schmidtchen and Schmidt-Trenz 1990, p. 16). On the international level, there is no authority that protects merchants' property rights, guarantees their freedom of contract, and enforces legitimate claims. Moreover, the transacting parties negotiate their contracts with their domestic customs of trade and informal rules of conduct in mind. As a consequence, in addition to problems like exchange rate, risks encountered in border-crossing transactions are characterized by legal and political uncertainties. Consequently, they seem to involve very high transaction costs.

    Nevertheless, we can observe various kinds of international business - for example, strategic alliances, manufacturing joint ventures, complex long-term contracts, or high-technology licensing agreements - that take place between merchants from virtually every country in the world (Stoecker 1990). Some of the most important phenomena in the global economy today are increasing foreign direct investments and transnational corporations, which play a major role in linking national economies (UN 1995, p. xix). At present, the activities of transnational corporations are more important than standard trade contracts (UN 1995, p. 193). However, there remains a significant part of border-crossing trade among independent private agents. Because of the focus of this article, we will not go into the special problems facing transnational corporations but will concentrate on transactions between noncompatriots.(5)

    Today, technological progress, especially in information and communication technologies, and vast improvements in transport have facilitated border-crossing exchange of goods and services and make for an increasing importance of international trade. As a consequence, specialization among merchants is further increasing (Dunning 1993). Regarding international business relations, Cooter writes that "[t]he modern economy creates many specialized business communities. These communities may form around a technology such as computer software, a body of knowledge such as accounting, or a particular product such as credit cards" (Cooter 1996, p. 147). It therefore seems reasonable to assume that international trade occurs rarely as a spot transaction between anonymous buyers and sellers. Rather, it can be expected that groups of highly specialized business people exchange goods and services. Frequently, they are organized in trade and professional associations that bring together buyer and seller (Cremades and Plehn 1984). In some lines of business, merchants can employ firms specialized in foreign trade as middlemen in border-crossing transactions. Therefore, we can presume that the business people know each other quite well and transact regularly.(6) These long-term and often personal business connections between merchants, and the importance of reputation in the particular specialized group for the individual success in business, form the background for nonsimultaneous transactions in international trade today.(7) Additionally, transactions are facilitated by modern means of payments and credits and by a network of banks that operate on an international level, thus being able to safeguard payments (e.g., documentary credits).

    The drafting of contracts between noncompatriots is nevertheless often a difficult and complex task involving possibly higher transaction costs than within the same country. Merchants need to agree not only about the price, quality, and amount of exchanged goods and services. They need to specify the law governing their contract in order to fix the conditions in case of disputes arising from the contract.(8) Furthermore, the parties in a contract must choose among various means of payments while taking into account possible exchange rate fluctuations. Similarly, different forms of conveyance make it necessary for merchants to agree on delivery terms.

    Thus, the international business community has to overcome several difficulties and uncertainties characteristic of border-crossing transactions. In the following section, we will show that it is the modern lex mercatoria that plays a major role in reducing the above-mentioned transaction costs of international business by facilitating the drafting of contracts and by creating a reliable institutional framework for international transactions.

    The Modern Lex Mercatoria

    Generally, the modern lex mercatoria is defined as "a transnational legal order founded on the trade usages of the international business community" (Schmitthoff 1987, p. 43).(9) The lex mercatoria is not created by national legislation or judication and is no international law. For the emergence of the modern lex mercatoria, it is essential that contracting parties in nearly all nation-states have the right to choose the law applicable to their contract, to enter into self-regulatory contracts, and to determine disputes by arbitration (Cremades and Plehn 1984; Schmitthoff 1987). The evident diversity and inadequacy of the national legal systems under the rapidly changing circumstances of international business seem to be the causes for the emergence of an autonomous institutional framework for international transactions (Goldstajn 1961).

    The modern lex mercatoria can be more exactly defined as an institutional set consisting of trade usages, model contracts, standard clauses, general legal principles, and international commercial arbitration.(10) We will briefly describe these elements.

    Trade usages are at the core of the modern lex mercatoria. In the American Uniform Commercial Code, they are defined as "any practice or method of dealing having such regularity of observance in a place, vocation or trade as to justify an expectation that it will be observed with respect to the transaction in question".(11) In other words, trade usages must be commonly accepted by the trading community. They ensure that the special characteristics and needs of the international business community are recognized and reflected in the modern lex mercatoria. They are binding without special...

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