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Globalization and Private Law
Globalization and
Private Law
The Way Forward
Edited by
Michael Faure
Professor of Comparative and International Environmental
Law, Maastricht University and Professor of Comparative
Private Law and Economics, Erasmus University Rotterdam,
The Netherlands
André van der Walt

South African Research Chair in Property Law and Professor of
Law, Stellenbosch University, South Africa
Edward Elgar
Cheltenham, UK • Northampton, MA, USA
© The Editors and Contributors Severally 2010
All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system or transmitted in any form or by any means, electronic, mechanical or
photocopying, recording, or otherwise without the prior permission of the publisher.
Published by
Edward Elgar Publishing Limited
The Lypiatts
15 Lansdown Road
Cheltenham
Glos GL50 2JA
UK
Edward Elgar Publishing, Inc.

William Pratt House
9 Dewey Court
Northampton
Massachusetts 01060
USA
A catalogue record for this book is available from the British Library
Library of Congress Control Number: 2009940743
ISBN 978 1 84844 760 8
Typeset by Cambrian Typesetters, Camberley, Surrey

Printed and bound by MPG Books Group, UK
02
Contents
List of contributors xv
List of abbreviations xvi
Introduction and editorial preface 1

Michael Faure and André van der Walt
1 Problem definition and reasons for this book 1
1.1 Lawmaking in a globalized world 2
1.2 Convergence, divergence, accountability and legitimacy 3
1.3 Who sets the agenda? 4
2 History and origins of this book 4
3 Methodology 6
3.1 Legal multidisciplinarity 6
3.2 Comparative approach 7
3.3 Multidisciplinarity 7
4 Topics 7
5 Central focus 10
6 Structure of this book 10
7 Contributors 11
8 Acknowledgements 11
References 12
PART I GLOBALIZATION, DEMOCRACY AND ACCOUNTABILITY
1 Democracy and (European) private law: a functional approach 15

Jan Smits
1 Introduction 15
2 Law without a state: a problem of democracy? 17
3 Deconstructing democracy 19
4 The legitimacy of the draft CFR 22
4.1 Accountability: legitimacy through jurisdictional
competition 23
4.2 Participation: the experience with optional instruments 24
4.3 Private law: design or organism? 25
5 Conclusions 27
References 28
v
vi Globalization and private law
2 Public accountability of transnational rule making:

a view from the European Union and beyond 32
Deirdre Curtin
1 Introduction 32
2 Shifts in transnational governance: actors, instruments
and levels 33
2.1 Multi-level governance 33
2.2 Actors 34
2.3 Instruments 39
2.4 Levels 40
3 Approaches to legitimacy and democracy of transnational
governance 41
3.1 Approaches to understanding legitimacy in the EU 41
3.2 Understanding and conceptualizing (EU) ‘democracy’ 44
4 Conceptualizing and applying public accountability 45
4.1 Accountability relationships 45
4.2 Accountability as a virtue 47
4.3 Accountability as a social relationship 49
5 Concluding remarks 50
References 52
PART II HARMONIZATION VERSUS DECENTRALIZATION
3 Private law in a globalizing world: economic criteria for

choosing the optimal regulatory level in a multi-level
government system 57
Roger Van den Bergh
1 Introduction 57
2 Heterogeneity of preferences 59
3 Decentralized information and innovation 62
4 Interstate externalities 63
5 Scale economies, transaction cost savings and the
elimination of trade barriers 65
5.1 The size of the cost savings 66
5.2 Does harmonization advance market integration? 68
6 Regulatory competition 69
6.1 The level playing field argument 70
6.2 Different types of regulatory competition 72
6.3 Race to the bottom or race to the top: theoretical
work and empirical evidence 75
7 A public choice perspective 77
Contents vii
8 Lessons for globalization of private law 80

8.1 Interstate externalities 81
8.2 Regulatory competition 84
8.3 Cost savings 85
8.4 Benefits of decentralization 89
9 Conclusions 91
References 93
4 Globalization and harmonization of international trade law 97

Sieg Eiselen
1 Introduction 97
2 A brief history of trade law harmonization: the Vienna
Convention for the International Sale of Goods, 1980 (CISG) 100
3 Different methods of achieving harmonization 106
3.1 Introduction 106
3.2 Instruments employed to achieve harmonization 107
3.2.1 Formal instruments – conventions 107
3.2.2 Soft law instruments – model laws or
model codes open for adoption by countries 111
3.2.3 Soft law instruments – voluntary codes
open for adoption by individual commercial
parties 113
3.3 Agents and their methods of harmonization 114
3.3.1 UNCITRAL 114
3.3.2 The International Chamber of Commerce (ICC) 119
3.3.3 Unidroit 123
3.3.4 World Customs Organization 125
4 Conclusion 127
References 129
Conventions 129
Legislation 129
Case Law 129
Bibliography 131
List of websites accessed 136
PART III PUBLIC LAW
5 The relation between private law and administrative law

in view of globalization 139
Frits Stroink
1 The true nature of administrative law 139
2 Contracts between the administration and the citizen 140
viii Globalization and private law
3 Administrative law and globalization 141

3.1 The principle of legality 142
3.2 Principles of proper administration 142
3.3 Supervision by a judge 143
4 Conclusion 143
References 144
6 Beyond parochialism? Transnational contextualization in

constitutional interpretation in South Africa (with particular
reference to jurisprudence of the Constitutional Court) 145
Lourens du Plessis
1 Introductory observations and explanations 145
2 Gateway(s) to the ‘transnational context’ 147
2.1 Section 39 and the Makwanyane Guidelines 147
2.1.1 The first guideline 148
2.1.2 The second guideline (and the ‘framework
dictum’) 149
2.1.3 The third guideline 149
2.2 ‘Transnational contextualization’ 150
3 International law 151
3.1 International law, globalization and South Africa’s
‘new constitution’ 151
3.2 ‘Binding’ and ‘non-binding’ international law 154
3.3 Looking critically at the framework dictum in
Makwanyane 155
3.4 The framework dictum compromised? – AZAPO 156
3.5 Back to the framework: Grootboom 158
3.6 Some other judgments significant for engagement
with international law in constitutional interpretation 160
3.7 An underused presumption 162
3.8 Travaux préparatoires in constitutional interpretation –
an example of international law ‘making’ domestic
constitutional law 164
3.9 Conclusions pertinent to the role of international law 165
4 Foreign law and constitutional comparativism 168
4.1 Constitutional comparativism: believers and disbelievers 168
4.2 The demonstrable value and advantages of constitutional
comparativism 173
4.3 Conclusions pertinent to constitutional comparativism 175
5 General conclusions 178
References 179
Cases 179
Bibliography 180
Contents ix
7 Globalization, state commercial activity and the

transformation of administrative law 183
Geo Quinot
1 Introduction 183
2 ‘State commercial activity’ 186
3 Applicable norms 187
4 Enforcement of norms 193
5 Private and public in law and social practice 201
6 Conclusion 203
References 204
PART IV CORPORATE GOVERNANCE
8 Globalization: selected developments in corporate law 211

Bas Steins Bisschop
1 Introduction 211
2 The VOC: history and present 213
2.1 Foundation of the VOC 213
2.2 ‘Act of magic’ 214
2.3 Shareholders’ rights in relation to the corporate
organization 215
2.4 Conclusion 216
3 The BRIC countries 217
3.1 Brazil 217
3.2 Russia 218
3.3 India 219
3.4 China 220
3.5 Conclusion 222
4 The corporation and its stakeholders 222
4.1 The main players in the corporate organization 223
4.2 Shareholder and stakeholder models 223
4.3 Convergence between these models? 224
4.4 The enlightened shareholder model 227
4.5 Corporate social responsibility 228
4.6 Corporate interest 229
4.7 Conclusion 229
5 Challenges to the global corporate system 230
5.1 The systematic threat posed by the credit crunch 230
5.2 The threat posed by hedge funds 232
5.3 The threat posed by bookkeeping scandals 232
5.4 Other possible threats 233
5.5 Reflex responses to the threats, and conclusion 234
x Globalization and private law
6 The limitations of legal remedies in the resolution of crises 236

6.1 Ex Post and hindsight-biased judgments 236
6.2 Confusion 238
6.3 No surprise, really 240
6.4 Further observations 241
6.5 Conclusion 243
7 Supporting legal remedies in the resolution of crises 243
7.1 Some further comments on the efficiency of regulation 244
7.2 Transition 245
7.3 The South African Truth and Reconciliation
Commission 247
7.4 Amnesty 248
8 Bringing together regulation, supervision, confidence and
the TRC 249
8.1 Intermediate conclusion 249
8.2 The association with the TRC 250
8.3 Recommendation 250
References 251
9 Globalization and corporate law 255

Philip Sutherland
1 Introduction 255
2 What is globalization? 255
3 Globalization, corporate law and multinational corporations 265
4 Corporate law theory 271
5 What form should corporate regulation take in the
globalized world? 283
5.1 Regulation in national law 284
5.2 Convergence of national corporate laws 290
5.3 International rules 298
6 Alternative systems for constraining the activities of global
corporations 299
6.1 A system of competing rules 300
6.2 The establishment of constraints outside traditional
law 302
6.2.1 International institutions 304
6.2.2 Self-regulation by MNCs 317
6.2.3 Non-governmental organizations 321
6.2.4 Tightly knit multi-stakeholder networks 323
6.2.5 Conclusions regarding the restraining of
the activities of MNCs outside traditional law 326
7 Conclusion 328
Contents xi
References 330
Legislation, Codes and Reports 330
Cases 333
Books 333
Journal articles 334
Websites 339
PART V PROCEDURAL ISSUES
10 Civil procedure in a globalizing world 343

Remco van Rhee
1 Introduction 343
2 Law reform at the national level 345
3 Competition between national systems of civil procedure 348
4 Harmonization of procedural law on an international and a
global scale 350
4.1 The Storme Report: harmonization on a European scale 350
4.2 The principles of transnational civil procedure and
harmonization on a worldwide scale 357
5 Final remarks 361
References 362
PART VI HUMAN RIGHTS AND THE ENVIRONMENT
11 Fundamental rights in private law: anchors or goals in a

globalizing legal order? 367
Siewert Lindenbergh
1 Human rights in private law 367
2 Four illustrations 369
2.1 The Bürgschaft case 369
2.2 The case of Wiebke Busch 370
2.3 The Traveller case: limitation of liability 371
2.4 The Pye case: deprivation of possession, or not? 372
3 Bridging the traditional dichotomy between private law and
public law 373
4 The added value of a fundamental rights approach in
private law 376
5 Constitutional and/or supranational courts as driving forces 377
6 Issues in relation to globalization 377
7 A different perspective: private law as a tool for protection of
fundamental rights 379
8 Concluding remarks 380
References 381
xii Globalization and private law
12 Globalization and multi-level governance of environmental

harm 383
Michael Faure
1 Introduction 383
1.1 Starting point 383
1.2 Challenges 384
1.3 General background 385
1.4 Structure 386
2 Influence of environmental issues on globalization: positive
analysis 387
2.1 Increase of transboundary pollution 387
2.2 Increased mobility of products and services 388
2.3 Lowering environmental quality? 390
3 Influence of environmental issues on globalization:
normative analysis 392
3.1 Multi-level governance 392
3.2 Shift of governance for local pollution? 394
3.2.1 Danger of a race to the bottom? 395
3.2.2 The trade–environment dispute 396
3.3 Mobility of products, firms and services 399
4 Influence of globalization on (private) environmental law:
positive analysis 400
4.1 Institutional 400
4.2 Procedural 401
4.2.1 Integration of various legal spheres 401
4.2.2 Effect of international law on private law 402
4.2.3 Effect on public participation 403
4.2.4 Tendency toward consensual solutions? 404
4.3 Contents 405
5 Influence of globalization on (private) environmental law:
normative analysis 406
5.1 Institutional 406
5.1.1 Lawmaking beyond the nation state 406
5.1.2 Victim and environmental protection doubtful 407
5.1.3 Green treaties or protectionism? 409
5.1.4 Limited public participation 410
5.1.5 Shift problematic 411
5.1.6 Possible remedies 411
5.2 Procedural 412
5.2.1 Distinction international–national becomes
blurry 412
5.2.2 Successful bargaining? 413
5.3 Contents: differentiation of standards 414
Contents xiii
6 Contribution of environmental law to the globalization

debate 415
6.1 Environmental issues that shape the globalization
debate 415
6.2 Influence of globalization of environmental private law 415
6.3 Many unresolved issues … 416
6.4 … Need multidisciplinary research! 417
References 417
13 The rule of law and judicial activism: obstacles for shaping

the law to meet the demands of a civilized society, particularly
in relation to climate change? 426
Jaap Spier
1 The nemesis of climate change 427
2 A call for legal activism in the field of climate change? 427
3 Judicial activism: a brief introduction 428
4 A closer look 430
5 A few examples 437
5.1 Dutch cases I 437
5.2 A slippery slope 439
5.3 Dutch cases II 440
5.4 The human rights perspective 441
5.5 Compelling requirements of equity 441
5.6 French, Belgian and Italian cases 442
5.7 Hard cases on the edge of moral 443
5.8 Non-European cases 443
5.9 The struggle between judiciary and legislator 444
5.10 Historical wrongs 445
5.11 Climate change litigation 446
6 Legislator and judiciary 446
7 Interim conclusion 447
8 Back to climate change and other topics of truly significant
importance 448
References 451
PART VII COMPARATIVE CONCLUSIONS
14 Comparative and concluding remarks 457

1 Lawmaking beyond the nation state 457
2 Reaction to globalization by private actors 460
3 Regulation and control 461
xiv Globalization and private law
4 Private–public law 461

5 Convergence, divergence, harmonization 463
6 Reinstalling legitimacy and accountability 464
7 Procedural issues 465
8 Remaining issues and challenges 466
References 467
Index 469
Contributors
Curtin, Deirdre, University of Amsterdam and University of Utrecht, the
Netherlands
du Plessis, Lourens, Stellenbosch University, South Africa
Eiselen, Sieg, University of South Africa, South Africa
Faure, Michael, Maastricht University and Erasmus University Rotterdam,
the Netherlands
Lindenbergh, Siewert, Erasmus University Rotterdam, the Netherlands
Quinot, Geo, Stellenbosch University, South Africa
Smits, Jan, Tilburg University, the Netherlands and University of Helsinki,
Finland
Spier, Jaap, Hoge Raad and Maastricht University, the Netherlands
Steins Bisschop, Bas, Maastricht University and Nyenrode Business
University, the Netherlands
Stroink, Frits, Maastricht University, the Netherlands
Sutherland, Philip, Stellenbosch University, South Africa
Van den Bergh, Roger, Erasmus University Rotterdam, the Netherlands
Van der Walt, André, Stellenbosch University, South Africa
Van Rhee, Remco, Maastricht University, the Netherlands
xv
Abbreviations
(A) Appellate Division of the Supreme Court (South
Africa)
(CC) Constitutional Court (South Africa)
(E) Eastern Cape High Court (South Africa)
(N) Natal High Court (South Africa)
(SCA) Supreme Court of Appeal (South Africa)
(T) Transvaal High Court (South Africa)
(W) Witwatersrand High Court (South Africa)
Aarhus Convention Convention
AB AB Rechtspraak Bestuursrecht
ADR Alternative Dispute Resolution
AIDA Association International de Droit des Assurances
AJCL American Journal of Criminal Law
ALI American Law Institute
ALL ER All England Law Reports
ALL SA All South Africa Reports
ALR American Law Reports
ANC African National Congress
AZAPO Azanian People’s Organization
B2B business-to-business
B2C business-to-consumer
BCLR Butterworths Constitutional Law Reports (South
Africa)
BEE Black Economic Empowerment
BLLR Butterworths Labour Law Reports
BRIC Brazil, Russia, India and China
BSE bovine spongiform encephalopathy
C&F cost and freight
CC Crown Cases
CEO chief executive officer
CEPEJ European Commission for the Efficiency of Justice
CEPR Centre for European Policy Research
CERES Coalition for Environmentally Responsible Economics
CESR Committee of European Security Regulators
CFR Common Frame of Reference
xvi
Abbreviations xvii
CIETAC China International Economic and Trade Arbitration

Commission
CIF cost insurance freight
CII Confederation of Indian Industry
CISG Convention on the International Sale of Goods
CJTL Columbia Journal of Transnational Law
CLR Commonwealth Law Reports
CO2 carbon dioxide
CRT Caux Round Table
CSR corporate social responsibility
DCFR Draft Common Frame of Reference
DP Dalloz Périodique
EC European Community
ECCG European Consumer Consultative Group
ECHR European Convention on Human Rights
ECJ European Court of Justice
ECN European Competition Network
ECOSOC Economic and Social Council of the United Nations
ECR European Court Reports
ECT Treaty Establishing the European Community
EEC European Economic Community
EESC European Economic and Social Committee
EICC Electronic Industry Code of Conduct
EITI Extractive Industries Transparency Initiative
ELJ European Law Journal
EPA Environmental Protection Agency
ESCR International Network for Economic, Social and
Cultural Rights
Espoo Convention Convention on environmental impact assessment in a
transboundary context
ETI Ethical Trading Initiative
EU European Union
EUI European University Institute
EUROGOV European Governance Papers
EVRM Europees Verdrag van de Rechten van de Mens
EXW ex works
FAS free alongside ship
FASB Financial Accounting Standards Board
FLA Fair Labor Association
FOB free on board
FSA Japan Financial Services Agency
FSC Forest Stewardship Council
xviii Globalization and private law
GAP Gents Afrika Platform

GATT General Agreement on Tariffs and Trade
GC Global Compact
GDP gross domestic product
GMO genetically modified organism
HCA High Court of Australia
HCCH Hague Conference on Private International Law
HR Hoge Raad
HRA Human Rights Act
HRC Human Rights Council
IAEA International Atomic Energy Agency
IASB International Accounting Standards Board
IBGC Instituto Brasileiro de Governança Corporativa
ICC International Chamber of Commerce
ICESCR International Covenant on Economic, Social and
Cultural Rights
ICJ International Court of Justice
ICMM International Council of Mining and Metals
ICN International Competition Network
ICTI International Council of Toy Industries
IFC International Finance Corporation
IFRS International Financial Reporting Standards
IJGLS Indiana Journal of Global Legal Studies
ILO International Labour Organization
ILR Iowa Law Review
ILSA International Law Students Association
IMF International Monetary Fund
IMO International Maritime Organization
IOSCO International Organization of Securities Commission
ISO International Organization for Standardization
ITLOS International Tribunal for the Law of the Sea
JEPP Journal of European Public Policy
JLEO Journal of Law Economics and Organization
LJ Law Journal
LQR Law Quarterly Review
LR Law Review
LRTAP Geneva Convention on Long-Range Transboundary
Air Pollution
LSE London School of Economics
MDPA Mines de Potasse d’Alsace
METRO Maastricht European Institute for Transnational Legal
Research
Abbreviations xix
MJ Maastricht Journal of European and Comparative Law

MNC multinational corporation
NEA Nuclear Energy Agency
NGO non-governmental organization
NJCM Nederlands Juristen Comité voor de Mensenrechten
OECD Organisation for Economic Co-operation and
Development
OHADA L’Organisation pour l’Harmonisation en Afrique du
Droit des Affaires
OJ Official Journal
ORGALIME European Engineering Industries Association
Public Procurement Public Procurement Law Review
LR
PULP Pretoria University Law Press
R&D Research and Development
RECIEL Review of European Community and International
Environmental Law
Rome I Proposal for a Regulation of the European Parliament
and of the Council on the law applicable to contractual
obligations
RSA Republic of South Africa
SA South African Law Reports
SACR South African Criminal Reports
SAJHR South African Journal on Human Rights
SALJ South African Law Journal
SAR South African Reports
SAYIL South African Yearbook of International Law
SCA Supreme Court of Appeal of South Africa
SCR Canada Supreme Court Reports
SEC US Securities and Exchange Commission
SGECC Study Group on a European Civil Code
SPS Agreement WTO Agreement on the Application of Sanitary and
Phytosanitary Measures
Stell. LR Stellenbosch Law Review
STIAS Stellenbosch Institute for Advanced Study
TBBR Tijdschrift Belgisch Burgerlijk Recht
TEU Treaty on European Union
TRC Truth and Reconciliation Commission
TSAR Tydskrif vir die Suid-Afrikaanse Reg (Journal for
South African Law)
UCC Uniform Commercial Code
UCP Uniform Customs and Practice for Documentary
Credits
xx Globalization and private law
UK United Kingdom
UKHL United Kingdom House of Lords Decisions
ULF Uniform Law on the Formation of Contracts for the
International Sale of Goods
ULIS Uniform Law of International Sales
UN United Nations
UN ESCOR United Nations Economic and Social Council
Regulation
UNCITRAL United Nations Commission for International Trade
Law
UNCTAD United Nations Conference on Trade and Development
UNCTC United Nations Convention on Transnational
Corporations
UNECE United Nations Economic Commission for Europe
UNIDROIT International Institute for the Unification of Private
Law
UNSW University of New South Wales
UP UNIDROIT Principles of International Commercial
Contracts
US United States
US GAAP United States Generally Accepted Accounting
Principles
USA United States of America
VOC Verenigde Oost-Indische Compagnie
VPs Voluntary Principles on Security and Human Rights
WCO World Customs Organization
WRAP Worldwide Responsible Accredited Production
WTO World Trade Organization
ZWeR Zeitschrift für Wettbewerbsrecht
Introduction and editorial preface
1 PROBLEM DEFINITION AND REASONS FOR THIS

BOOK
A central focus in the debate on private law in Europe has recently been
whether in specific domains (liability, property or company law) one can
notice a convergence of legal systems or whether there is still room for diver-
gence. The many harmonization processes in Europe (but also in other juris-
dictions) and in federal systems have been described and critically evaluated
in the literature. Less attention has so far been given, at least in private law
doctrine and theory, to the more public law oriented processes behind lawmak-
ing in private law. Many private lawyers do pay attention to the increasing so-
called constitutionalization of private law, for example focusing their attention
on the influence of human rights in private legal relationships. Private lawyers
have also noticed that, as a result of evolutions at the level of public law (inter-
national organizations, EU, WTO), fundamental changes have taken place that
affect the area of private law.
In continental Europe, for instance, lawmaking has been influenced by
regional and international changes and shifts in emphasis for a long time.
English law has started feeling the impact of this process more recently, since
the adoption of the Human Rights Act 1998 and the concomitant domestic
implementation of the European Convention on Human Rights. In South
Africa, similar interactions between international human rights principles, a
new democratic Constitution (including a Bill of Rights) and private law
lawmaking have become visible since the early 1990s. As a result of these
shifts, the traditional division of labour between national law makers and the
judiciary has also changed. In this respect one can for example refer to the fact
that judicial review now often also involves the application of international
norms, even in domestic private legal disputes.
Private lawyers have noticed the influence of the changing institutional
structures. However, so far insufficient attention has been paid to the chang-
ing institutional processes and the way in which they affect the agenda of
private law in a globalizing world. In particular, private lawyers have not yet
come to explore the full implications of globalization on lawmaking in the
1
2 Globalization and private law
sphere of private legal relationships. At most, one can speak of indications that
traditional law makers and judicial officers in the sphere of ‘pure’ private law
may resist the increasing influence of international and other public law instru-
ments, rules and standards, while on the other hand there are strong indications
that the influence of international law and of non-traditional legal sources is
de facto increasing.
1.1 Lawmaking in a Globalized World
It is not difficult to point to a variety of developments that have taken place

recently as a result of which the scope and contents of private law, and more
particularly the sources and responsibilities for lawmaking, have changed. On
the one hand, one can point to the importance of institutional globalization,
whereby national constitutions, regional and international conventions on
human rights and other international treaties, instruments and processes are
increasingly influencing the scope and content of private law. However, glob-
alization not only influences private law on the institutional level of decision-
making (for example, through constitutionalization of private law, influence of
human rights and centralization of decision-making); it also influences the
material contents of private law. In this respect one just has to point to the fact
that the globalization of international financial markets has had a considerable
influence on the contents of private legal relations. Increasingly, institutional
investors seem to determine decision-making of private actors, irrespective of
national borders.
This globalization of financial markets has of course highlighted the limits
of legal remedies as well, and many have asked to what extent these interna-
tionally operating institutional investors comply with standards of account-
ability and, moreover, whether they can be held accountable for their
behaviour, considering their influence on private legal relationships. The
growing institutional tendency to shift powers away from the national legisla-
tor and towards international organizations and institutions seems to be
mirrored by a similar development towards more self-regulation, precisely to
control this process of globalization in financial markets. Formal institutional
structures are often lacking and are replaced by fiduciary duties or codes of
conduct, often under the heading of corporate governance or corporate social
responsibility. However, recent scandals whereby private investors seemed to
be victimized by failing control and auditing mechanisms have led to serious
questions concerning the effectiveness of this type of self-regulation and have
led to increased calls for institutional controls, including in this area of glob-
alizing financial markets.
However, it is not only economic and financial globalization which is of
great importance, but also political globalization, which may have implica-
tions for domestic legal systems as well. The implications and the importance
of financial/economic globalization are clear for private as well as for public
law (for example, pointing to developments within international trade law).
There are, in addition, increasing signs of political globalization, more partic-
ularly a further expansion of the notion of constitutional democracy.
Originally, this political model seems to have been the ‘privilege’ of countries
in the North. Nowadays, however, this model is exported to quite remote
places. This political globalization has important consequences for the legal
system as well. Hence, one may wonder whether, in addition to economic
globalization, there is also a convergence of virtues, values and interests that
results from increasing political globalization.
1.2 Convergence, Divergence, Accountability and Legitimacy
Indeed, questions arise about the appropriate way in which the legal system
should react to the pressures of increasing globalization that directly affects
private legal relationships. Some argue that increasing harmonization of legal
systems is the appropriate answer to globalization in financial markets,
whereas others argue that globalization does not do away with local differ-
ences and differing preferences, so that room should still be left for diver-
gence. A fundamental question in this respect is who finally takes the decision
on lawmaking: within the so-called federalism debate it may be clear that it is
no longer only the national legislator who takes decisions, since lawmaking is
increasingly influenced by international institutions and organizations.
However, the role of these organizations in lawmaking raises serious questions
of accountability and legitimacy.
Questions also arise about the relationship between the judge in the domes-
tic legal system who has to resolve disputes between private parties and inter-
national norms. In some cases, judges in national courts can be called upon to
apply international norms directly, or they can test the legitimacy of national
legal instruments against international norms (such as human rights). At the
international level, globalization thus also has a direct influence on adjudica-
tion of private legal relationships. Less clear, however, especially at the
normative level, is who should ideally have the power of decision-making in
this respect: should it be the legislator, or can sufficient leeway be given to the
judiciary? Moreover, the fact that the judiciary is called upon to interpret and
apply international legal norms does not answer the fundamental questions
with respect to the accountability and legitimacy of international organizations
which set the standards that the judges apply within the national legal context.
To some extent, institutional solutions within the public law arena are
presented as either judicial review or review by constitutional courts or courts
of human rights. However, the mechanisms put in place within the different
settings and jurisdictions vary to a large extent, including as far as their influ-
ence on private legal relationships is concerned.
1.3 Who Sets the Agenda?
Increasing political globalization has important consequences and leads to

fundamental questions, inter alia with respect to who are the key drivers
behind the process of convergence of norms and values. Some hold without
further discussion that the US and other industrialized democracies should
define the agenda leading to a further convergence towards constitutional
democratization at a global level. In this respect one can quote Seita,1 who
argued that
Perhaps by the year 2001, the representatives of oppressors, victims, victors, losers
and adversaries, could assemble on a world stage in a therapeutic ceremony to put
the past behind.
That futuristic perspective has not been realized yet and, moreover, the ques-
tion is whether, as some of the literature indicates, it should indeed be ‘the
West’ that determines the agenda leading to convergence of values at the polit-
ical level. Given the importance of political globalization an important ques-
tion is how various multicultural perspectives can be taken into account in
such a legal-political process of convergence. The traditional view that the
West can impose its norms upon the rest of the world is obviously no longer
the prevailing paradigm. The cultural clash between the West and, for exam-
ple, Muslim communities has shown that a convergence perspective should
also take multiculturalism into account. In that respect the comparison
between Europe and developments in South Africa is highly interesting, given
the fact that South Africa has, in its constitution, moved towards a recognition
of multiculturalism within one legal system.
2 HISTORY AND ORIGINS OF THIS BOOK

The project which inspired this book was based on cooperation between the
Ius Commune Research School and the Law Faculty of Stellenbosch
University in South Africa. The chapters in this book are based upon papers
that were presented at two conferences held in December 2007 and December
2008 in Stellenbosch (South Africa).
1 Seita (1997).
Many of the European contributors to this book worked together in the Ius
Commune Research School which is a collaboration between the law faculties
of the universities of Amsterdam, Maastricht and Utrecht (the Netherlands)
with the Catholic University of Leuven. The focus of the Ius Commune
Research School is on the role of law in integration processes. A lot of atten-
tion has always been paid in the research of the Ius Commune Research
School to questions of harmonization and comparative law in the area of
private law, focusing strongly on the questions related to the harmonization
debate. In that respect the Ius Commune Research School (which started its
activities in 1997)2 has a long-standing collaboration with law faculties repre-
senting mixed legal systems, on the basis of the belief that the lessons from
mixed legal systems can prove valuable for the harmonization debate in
Europe.3 Hence, the Ius Commune Research School has long-standing
contacts with the law faculty of the University of Edinburgh4 and with the law
faculty of the University of Stellenbosch in South Africa. Earlier joint confer-
ences have been organized and books have been published together with South
African colleagues and the Scottish and South African colleagues5 have
always attended the annual conferences of the Ius Commune Research School.
During a dinner at an annual conference of the Ius Commune Research
School organized by the Utrecht Law Faculty in November 2006, a group of
South African and European Ius Commune scholars sat together, brain-
storming the abovementioned problems concerning the making of private law
in the age of globalization. It was the conviction of the participants in that
brainstorming session that globalization poses specific problems for the
making of private law that have not been sufficiently studied and that merit a
thorough comparative analysis. It was decided that a combination of insights
from European scholars interested in the harmonization debate and South
African experience with mixed legal systems could enrich the common
research agenda.
As a result of that discussion, a first exploratory research workshop was
organized at the Stellenbosch Institute for Advanced Study (STIAS) on 6–8
December 2007, where during three days 12 papers were presented, intense
discussions took place and comparative conclusions were drafted. On the basis
of this first workshop it was decided that the time was not right yet for a
2 http://www.iuscommune.eu.
3 See generally on mixed legal systems the contributions to Smits (2001, p.
126).
4 Which inter alia organized the annual conference of the Ius Commune
Research School in 2005.
5 See for example van Maanen and van der Walt (1996, p. 687); Faure and
Schwarz (1998, p. 283); Faure and Neethling (2003, p. 230).
publication, although a valuable contribution to the setting of the research

agenda had been made. Hence, following a memo ‘Globalization and private
law: the way forward’, it was decided to ask a few contributors to work out
their earlier presentations in further detail and to invite some new presenta-
tions. On that basis, a second conference was held in December 2008 at the
Stellenbosch University Law Faculty, and more particularly at the South
African Research Chair in Property Law. Presenters at the December 2007 and
December 2008 conferences were subsequently invited to rework their papers
in the light of the discussions and comments received. A brief review proce-
dure was followed, resulting in this book.
3 METHODOLOGY
The organizers of the seminars consisted of the editors of this book, together
with Jan Smits (Tilburg University) and Jacques Du Plessis (Stellenbosch
University). The organizers were of the opinion that an attempt to provide a
useful contribution to the debate on the influence of globalization on private
lawmaking necessitates a combination of various methodological
approaches.
3.1 Legal Multidisciplinarity
As will be clear from the table of contents, we have looked for insights from
various legal disciplines and authors, who have tried to integrate various
legal disciplines into their chapters. Of course, the traditional private law
legal approach is followed by many contributors (for example Smits), while
others look at the influence of harmonization in the area of international
trade law on private law (Sieg Eiselen). Crucial for a better understanding of
the lawmaking process in private law is obviously the incorporation of
insights from public law scholars. They pay attention to the fact that the
traditional boundaries between public and private law become increasingly
blurry since state actors increasingly use private law to reach their goals
(Geo Quinot and Frits Stroink). Particular case studies looking at the influ-
ence of globalization on specific areas of the law also provided valuable
insights, for example focusing on the domains of company law (Bas Steins
Bisschop and Philip Sutherland), procedural law (C.H. van Rhee) and envi-
ronmental law (Michael Faure and Jaap Spier). Specific attention was paid
in many contributions to the increasing influence of human rights, obviously
in constitutional interpretation (Lourens du Plessis), but also in private law
(Siewert Lindenbergh).
3.2 Comparative Approach
Given the nature of this book, which originated as a cooperation between

European and South African scholars, legal comparison received a lot of
emphasis. Not only do many chapters discuss interesting topics from the
domestic legal system of the author (either European or South African), but
many also engage explicitly in comparison with other legal systems (such as
that of the US). A lot of attention is paid to specific problems of comparative
legal methodology, related inter alia to problems that may arise in the case of
so-called borrowing, but also related to the question of how globalization
affects fundamental differences between legal cultures and values.
3.3 Multidisciplinarity
Even though this book started from a seemingly straightforward legal question
(how globalization affects private lawmaking) it soon became clear that one
needs more than ‘hard’ law to be able to answer this question. Hence, the
second chapter (by Deirdre Curtin) promptly addresses fundamental notions of
democracy and accountability and draws lessons from political science to
explain how the notions of legitimacy and accountability could be interpreted
in a meaningful way in the debate on private lawmaking. The fundamental
question of whether globalization necessarily leads to global lawmaking is one
which has also been extensively dealt with in economic literature. Hence,
some chapters are especially devoted to the question of whether the economic
analysis of law also provides useful insights for the (normative) question as to
what types of issues should be regulated on a central rather than a decentred
level (Roger Van den Bergh and, regarding environmental problems, Michael
Faure).
4 TOPICS
It may be clear from the broadly formulated and ambitious research agenda
(see Section 1) that various major issues can be distinguished:
• The effect of globalization on private law is central to the whole project.

This is largely a factual question whereby the importance of the reallo-
cation of economic power and the importance of changes in financial
streams have to be analysed for private legal relationships.
• A related question is how private law can react to this process of glob-
alization. Attention can be given in that respect to the factual answers
that private parties provide to globalization, but also to institutional
structures that can provide the backing for globalization (such as the
constitutionalization of private law and the influence of international
institutions and structures). Attention can also be given to the nature of
the legal reaction to globalization, more particularly as far as the impor-
tance of self-regulation for private law is concerned.
• A closely related topic is of course whether the distinction between
public and private law is still valid today in this globalizing context.
Above it was pointed out how public law evolutions affect private law
as well. That merits the question of whether the traditional distinction
between these systems, at least in civil law, should still be maintained.
This unavoidably also reopens the classic distinction between the civil
and common law systems, because in the common law the traditional
dichotomy between private and public law always had a different mean-
ing from that in civil law jurisdictions.
Of course these major issues are still rather broadly formulated. The orga-
nizers of this research project formulated ten more specific questions that
might play a role in the debate on the influence of globalization on private
lawmaking. Without suggesting that all of these topics would be fully dealt
with in the chapters in this book we identified at least ten that were to a larger
or smaller extent touched upon:
1. Who is in charge of agenda setting? This relates to the important consti-

tutional question of who is in charge of lawmaking, where the traditional
division of labour between legislator and the judiciary seems to be shift-
ing as a result of globalization. This question can be addressed both in a
descriptive (positive) manner and in a normative (more policy oriented)
way.
2. Related to the previous question is the question of the influence of
national and international constitutions and conventions on private legal
relationships. Increasingly, one notices that national judges are influ-
enced by provisions in (inter)national constitutions in deciding private
legal disputes. This merits an in-depth analysis of the role of traditional
judicial review in a multi-governance setting.
3. Another related question is the influence of human rights on private law,
also referred to as the debate on the constitutionalization of private law,
to which some attention has already been paid in the literature.
4. Within the debate on the role of private law in a globalizing world, the
multi-level governance debate also needs to pay attention to the tradi-
tional division of labour within federal systems. This concerns not only
the abovementioned division between the legislator and the judiciary, but
also the division between the different levels of government. One can for
instance notice an increasing enthusiasm, at least in Europe, for harmo-

nization of private law. Some even plead for a European Civil Code,
whereas others strongly doubt whether this type of far-reaching harmo-
nization is indeed an adequate answer to globalization.
5. In South Africa a debate is also taking place concerning the optimal
structure of harmonization. For example, with respect to the core private
law topic of the law of sale, the possibilities of harmonization between
the OHADA states is currently being debated.
6. The influence of globalization and international institutional structures
on specific domains in private law also needs to be addressed. For
instance, in the domain of real estate and property law one notices in
many legal systems (in South Africa, but also in many European legal
systems) that political developments and human rights shape the inter-
pretation and development of the traditional concept of property rights.
7. The same is undoubtedly true for procedural law, where one also notices
the decreasing autonomy of national legal systems and (under influence
of globalization?) a variety of developments towards alternative dispute
resolution (one can in this respect also refer to the increasing importance
of arbitration), as well as changes within national legal procedures them-
selves in an attempt to adapt these procedures to the changing demands
of the social partners.
8. An important topic is the increasing importance of arbitration, which
raises the question of to what extent this can constitute a serious response
to increasing demands for access to justice in a globalizing world.
9. Attention also needs to be paid to the role of self-regulation and self-
regulatory norms of conduct in private law. Some argue that self-regula-
tion has, particularly in the area of contract law, to some extent always
been prominent in private law. In areas like company law and to some
extent in liability law (where rules of professional conduct may shape the
standards of care), self-regulation has also always been mixed with
government regulation. In a globalizing world questions arise regarding
to what extent self-regulation can or should replace or supplement
government regulation and how the increasing tendency towards self-
regulation can be reconciled with the rule of law requirements related to
accountability and legitimacy.
10. Given the central focus on the importance of globalization in the finan-
cial and economic sphere for private law, attention will undoubtedly also
be paid to a few areas that are crucially related to the financial and
economic sector. In this respect one can think of the importance of world
trade law and more particularly the way in which this affects the
trade–environment dispute, but also on regulations concerning corporate
social responsibility (CSR).
5 CENTRAL FOCUS
It may be clear that dealing at length with these ten topics would require ten
books rather than one. This collection of chapters can hence do no more than
touch upon these issues in the hope of contributing to the research agenda in
this domain. It was suggested to the contributors that under the broad heading
of ‘the influence of globalization on private lawmaking’ a few central issues
play a role:
1. It is a financially and economically unavoidable fact that the shape and the
scope of private law have changed and are still changing under the pres-
sure of globalization.
2. This influence is combined with institutional changes such as the increas-
ing influence of norms of a higher level (like human rights) that also shape
private legal relationships.
3. Private law seeks remedies to both challenges by looking for new institu-
tional structures at different levels (multi-level governance), but to some
extent also outside the traditional legal arena (for example, through self-
regulation).
6 STRUCTURE OF THIS BOOK

In order to provide structure to the contributions the book is divided into parts.
Part I deals with general problems concerning globalization, democracy and
accountability. It contains a contribution by Jan Smits on a functional
approach to democracy and (European) private law (Chapter 1) and a chapter
by Deirdre Curtin on public accountability of transnational rule making: a
view from the European Union and beyond.
Part II deals with the debate between harmonization and differentiation or,
in institutional terms, between centralization and decentralization. Chapter 3,
written by Roger Van den Bergh, deals with private law in a globalizing world
and provides economic criteria for choosing the optimal regulatory level in a
multi-level government system. Chapter 4, by Sieg Eiselen, deals with global-
ization and harmonization of international trade law.
Part III contains contributions related to public law issues. Chapter 5, by
Frits Stroink, addresses the relation between private law and administrative
law in view of globalization. In Chapter 6, Lourens du Plessis analyses the
effect of transnational contextualization in the sphere of constitutional inter-
pretation. Chapter 7, by Geo Quinot, deals with globalization, state commer-
cial activity and the transformation of administrative law.
Part IV deals with the effects of globalization on corporate governance.
Bas Steins Bisschop addresses the role of globalization in the resolution of the
credit crisis in Chapter 8. Chapter 9, by Philip Sutherland, addresses global-
ization and corporate law.
Part V focuses on procedural issues and consists of Chapter 10, by C.H. van
Rhee, on civil procedure in a globalizing world.
Part VI focuses on human rights and environmental issues. Chapter 11, by
Siewert Lindenbergh, deals with fundamental rights in private law and asks
whether these are anchors or goals in a globalizing legal order. Chapter 12, by
Michael Faure, addresses globalization and multi-level governance of envi-
ronmental standards; while Jaap Spier asks whether there are particular obsta-
cles for shaping the law to meet the demands of a civilized society, particularly
in relation to climate change (Chapter 13).
Part VII consists of Chapter 14, which contains a set of comparative and
concluding remarks by the editors.
7 CONTRIBUTORS
The contributors to this book come, as was made clear, from various universi-
ties in Europe and South Africa. Michael Faure, Bas Steins Bisschop, Frits
Stroink, C.H. van Rhee, Jan Smits and Jaap Spier are (or at least were, in the
case of Jan Smits) connected (full-time or part-time) to Maastricht University.
Michael Faure also works at the Erasmus University Rotterdam, as do Siewert
Lindenbergh and Roger Van den Bergh. Deirdre Curtin is affiliated to the
University of Amsterdam. Lourens du Plessis, Geo Quinot, Philip Sutherland
and André van der Walt are all connected to Stellenbosch University in South
Africa. Sieg Eiselen is affiliated with the University of South Africa. A
complete list of the contributors and their affiliations is provided in the list of
contributors in the preliminary pages.
8 ACKNOWLEDGEMENTS
As editors of this book we are grateful to many people who made this project
possible. In this respect we refer especially to the two conferences held in
December 2007 and December 2008 in Stellenbosch. First of all we would like
to thank the Stellenbosch Institute of Advanced Studies (STIAS) for facilitat-
ing the December 2007 conference and the University of Stellenbosch Law
Faculty and more particularly the Dean, Gerhard Lubbe, for organizing (and
financially supporting) the December 2008 conference. As editors we owe
special thanks to William Binchy (Trinity College, Dublin), Jacques du Plessis
(Stellenbosch) and C.H. van Rhee (Maastricht) for providing excellent
summaries and overviews of the presentations and discussion, which provided

an excellent basis for our comparative conclusions.
We also owe thanks for the administrative support by the Maastricht
European Institute for Transnational Legal Research (METRO) and especially
to Joke Declercq for editorial assistance in the preparation for the publication
of this book. Finally we are truly grateful for the professional cooperation with
the people working at Edward Elgar, our publisher, for their assistance in the
publication of this book.
Texts were finalized in June 2009, and for that reason developments after
that date have not been included in this book.
Michael Faure
André van der Walt Maastricht/Stellenbosch, June 2009
REFERENCES
Faure, M. and J. Neethling (eds) (2003), Aansprakelijkheid, Risico en Onderneming:
Europese en Zuid-Afrikaanse Perspectieven, Antwerp: Intersentia.
Faure, M. and C.A. Schwarz (eds) (1998), De Strafrechtelijke en Civielrechtelijke
Aansprakelijkheid van de Rechtspersoon en Zijn Bestuurders, Antwerp: Intersentia.
Seita, A.Y. (1997), ‘Globalization and the Convergence of Values’, Cornell
International Law Journal, 30, 429–91.
Smits, J.M. (ed.) (2001), The Contribution of Mixed Legal Systems to European Private
Law, Antwerp: Intersentia.
Van Maanen, G.E. and van der Walt, A. (eds) (1996), Property Law on the Threshold
of the 21st Century, Antwerp and Apeldoorn: MAKLU Uitgevers.
PART I
Globalization, democracy and accountability

1. Democracy and (European) private
law: a functional approach
Jan Smits*
1 INTRODUCTION
The development towards a Common Frame of Reference for European
private law1 not only raises questions about what should be the contents of
private law rules for the European Union,2 but also challenges our traditional
understanding of how rules of private law should come into being. In the
European Member States, private law is traditionally ‘made’ in close cooper-
ation between the national legislatures and the courts: it is the result of an intri-
cate decision-making process at the national level (in which legal academia is
often also involved3). This is, to varying degrees, true for both civil law and
common law jurisdictions.
The drafting of the Common Frame of Reference and of other forms of
non-State law prompts the question of to what extent these instruments should
meet similar requirements as to legitimacy as the national rules in the Member
States. The prevailing view seems to be that the rules of the Draft CFR
(DCFR) do not meet the requirements of democratic legitimacy necessary in
the field of private law. Given that the DCFR was drafted by legal scholars,
united in the Study Group on a European Civil Code and in the Research
* Jan Smits is professor of European Private Law and Comparative Law at

Tilburg University, The Netherlands (Tilburg Institute of Comparative and
Transnational Law) and visiting professor of Comparative Legal Studies at the
University of Helsinki, Finland (Center of Excellence on European Law and Polity).
This chapter expands on ideas raised in Smits (2008, pp. 49–59). It benefits from
discussion at the conference Globalization and Private Law: The Way Forward,
Stellenbosch, 18–20 December 2008. Thanks are due to Jennifer Jun for invaluable
research assistance.
1 Von Bar et al. (2008).
2 The Draft CFR has already been elaborately discussed from this and other
perspectives. See, for example Vaquer (2008); the special issue of the European Review
of Contract Law (2008, pp. 223–454) and Cafaggi and Micklitz (2010).
3 Cf. van Caenegem (1987).
15
Group on the Existing EC Private Law, the DCFR would, in this respect, be a
typical example of Professorenrecht. This is also acknowledged by the
drafters, who presented their text as an ‘academic CFR’, a scholarly product
that is not politically legitimized and that, at best, could form the basis for a
‘political CFR’ to be drafted by the European Commission. But it is difficult
to deny that, in the drafting of the DCFR, many relevant choices were made.
In a recent book, Bastiaan van Zelst therefore sketches the following objec-
tions against this working method:4
This seems worrying from two different angles. First of all, the scholars that are
involved in the drafting of the DCFR lack democratic legitimacy. The group repre-
sents neither all of the populations of the Member States, nor their political convic-
tions. Secondly, it is questionable whether professors should be vested with the
translation of social-political reality into legislation. In a democratic society, this
would seem to principally be the task of the (democratically legitimized) legisla-
ture.
Other authors, most of them united in another group, namely the Study
Group on Social Justice in European Private Law,5 also hold the view that the
Europeanization of private law should take place in a much more democratic
way than is the case at present. This would not only be true for the DCFR but
for any attempt to create a European private law. These authors are clearly
influenced by the Critical Legal Studies view that all law (including private
law) is politics.6 In other words, if private law shapes the distribution of wealth
in a modern society, creating a future European private law would primarily
be a political process. Therefore, the rules of contract law that account for the
right balance between the free market and social justice should be determined
in a democratic way. Only consulting ‘stakeholders’ and legal practice in draft-
ing new European rules – as the European Commission proposes – is then not
enough; instead, the European Parliament and national legislators (including
national parliaments) must be involved.7 From a different theoretical perspec-
tive, Alain Verbeke recently also argued that the Europeanization process of
private law should be ‘re-politicized’.8 This is an important view: if these
authors are correct about their ‘democracy thesis’, it means that European
private law needs to be ‘made’ in a very different way from how it is now.
4 Van Zelst (2008, pp. 244–5).

5 Study Group on Social Justice in European Private Law (2004, pp. 653–74).
Also see Hesselink (2004, pp. 675–97); Hesselink (2006, pp. 39–70) and Mattei
(2003a, pp. 107–28).
6 Cf. Kennedy (1976, pp. 1685–1778) and Kennedy (2002, pp. 7–28).
7 Cf. Study Group on Social Justice in European Private Law, o.c., p. 669.
8 Verbeke (2008, pp. 395–413) at no. 15.
Democracy and (European) private law 17
In this chapter, I argue that this view (the ‘democracy thesis’) is mistaken.
The present Europeanization and globalization processes should radically
change our view of how rules (either existing or new ones) in the area of
private law are legitimized. My aim is not to reiterate the entire debate about
the legitimacy of new modes of governance,9 but to focus directly on rules that
seek to regulate the conduct of private parties. It is thus the core of private law,
and specifically the law of contract, with which I am concerned. In this area,
I argue that there are different (and better) ways of legitimizing private law
outside national parliaments.
This chapter is structured as follows. Section 2 begins with a more general
overview of new types of rule making that, although they evade the democra-
tic decision-making process, are important in regulating the behaviour of indi-
viduals and States. This raises the question of to what extent the emergence of
these new types of rules poses a problem for the legitimacy of private law. I
argue that the problem arises only if we perceive legitimacy in a very restric-
tive way, limiting it to democratic decision making by national parliaments.
Section 3 therefore proposes an alternative approach, a functional one, in
which the concept of democracy is deconstructed into various building blocks.
This more general theoretical framework should then allow us to assess the
Draft CFR in more detail in Section 4. Section 5 sums up the main argument.
2 LAW WITHOUT A STATE: A PROBLEM OF

DEMOCRACY?
The drafting of legal rules by academics for the future application of these
rules by private parties or States – as in the case of the Draft CFR – is only one
example of so-called ‘private global norm-production’.10 Over the last
decades, an increasing number of rules and policies were developed beyond
the nation-state.11 Apart from the European Union, which has its own proce-
dures for legitimizing the rules it produces, important policy decisions are
made by organizations such as the WTO, IMF and World Bank. In the area of
private law, the age-old example of the lex mercatoria12 is now supposedly
9 Cf. for example Curtin and Wessel (2005) and Eberlein and Kerver (2004, pp.
121–42) at p. 121.
10 See for this term Teubner (1997, pp. 149–69) at p. 157.
11 For an elaboration of the idea of private law beyond the nation state, see
Michaels and Jansen (2006, pp. 843–90); Jansen and Michaels (2007, pp. 345–97) and
the special issue of the American Journal of Comparative Law (2008, pp. 527–844).
12 Cf. recently Piergiovanni (2005).
supplemented by the lex laboris internationalis13 and the lex sportiva interna-
tionalis.14 In addition to this, types of voluntary law,15 such as norms adopted
by corporate networks (the most important example being codes of conduct
for corporate social or environmental responsibility), rules of standardization
organizations for technical standards (such as the codex alimentarius) and
other types of self-regulation16 are also supposed to influence the conduct of
private parties.
Most of these authoritative rules, norms and policies from ‘sites of gover-
nance beyond the nation-state’17 would not count as binding law in a tradi-
tional conception of legal rules: they do not meet the formal criterion of being
enacted by the relevant authorities. But they often do set the norms for specific
groups of people and are important in predicting their behaviour. One can
argue that, as the legitimacy of law was found in the laws of nature in the
seventeenth and eighteenth centuries and in democratic political legislation in
the nineteenth and twentieth centuries, it is now again time to find a new
source of legitimacy for legal rules.18 It is clear that such a new source of legit-
imacy cannot be found in the authority of the State. Not only is the authority
of the norms that were just described not dependent on the State, their author-
ity is also no longer exercised within clearly defined territorial entities;
instead, the relevant rules are often chosen and applied across existing
borders.19 Issues that were previously within the domain of democratic deci-
sion making at the national level have thus shifted to the international level.
If we accept that this type of lawmaking beyond the national State is
becoming more and more important, what does this mean for the democratic
legitimacy of the rules created in this process? In a recent article, Grainne de
Burca distinguishes several approaches in understanding the relationship
between democracy and transnational law.20 If legitimacy is a legal concept
that cannot be replaced by efficiency or expertise (meaning: public power
exercised outside the authority of the State should not escape the expectation
of democratic legitimation21), the best approach is one that tries to find alter-
natives for democracy. The democratic ideal should then be pursued in forms
other than through the national parliament. With the multiplication of legal
13 Cf. the contributions in Craig and Lynk (2006).

14 See F. Latty (2007) and Foster (2003, pp. 1–18).
15 See for this term Slaughter (1995, pp. 503–38) at p. 518.
16 See Cafaggi (2006) and Schiek (2007, pp. 443–66).
17 De Burca (2008, pp. 101–58) at p. 104.
18 Cf. Teubner, o.c., (1997) at p. 157.
19 Delbrück (2003, pp. 29–43) at p. 29.
20 De Burca, o.c., (2008) at p. 117.
21 Id., at p. 113.
sources, the need for such a rethinking of democracy is very clear.22 The
opposing view – now that there is no transnational demos and electorate,
democracy at another level than the national one is impossible23 – cannot be
accepted.
The important insight to be derived from this is that (private) law does not
necessarily have to find its legitimacy in the decisions of national parlia-
ments.24 Such a view would regard legitimacy in a very restrictive way. It is
true that, since the eighteenth century, democracy has been closely associated
with the State, but this need not be the case. The idea of democracy was
present long before the nation-state was developed,25 and now that we accept
law that transcends the boundaries of a territory and a people, we need to again
dissociate democracy from the State. The question therefore is how to change
our conception of law, very much based on the nation-state experience, so as
to meet the different conditions of global governance.26 The importance of
such a venture is paramount because, as one author puts it: ‘Democracy will
be possible beyond the nation-state – or democracy will cease to be possible
at all.’27
3 DECONSTRUCTING DEMOCRACY
The approach followed in this section is one in which the concept of democ-
racy is deconstructed into various building blocks. If we are able to define the
functions of democracy, it is possible to establish whether these functions can
also be fulfilled in another way in the area of European (or even global)
lawmaking. It is clear that finding such substitutes for the democratic legiti-
macy of law is only possible when we stop thinking in terms of national States
or parliaments. Instead, the legitimacy of law should be found in other factors.
It is also important to realize that our concern is not with all aspects of democ-
racy or of tasks of national parliaments: as indicated above, this chapter only
deals with the lawmaking process, in particular in the area of private law.
Having said that, this section first suggests that it is not democracy that is at
22 Also see Weiler, quoted by de Burca, o.c., (2008) at p. 105: ‘What is required
is … a rethinking of the very building blocks of democracy to see how these may or
may not be employed in an international system which is neither State nor Nation.’
Reference is sometimes made to the need for a ‘cosmopolitan democratic theory’.
23 See Dahl (1999, pp. 19–36) and Dahl (1998).
24 See for this debate also Michaels and Jansen, o.c., (2006) at p. 879, criticized
by Rödl (2008, pp. 743–67) at p. 751.
25 Dunn (2005).
26 See Habermas (2001a) at p. 58.
27 Pelinka (2003).
stake when drafting law, but rather the legitimacy of the rules in question.
Second, it is argued that such legitimacy can be found in three different
factors.
It should first be acknowledged that it is difficult to use the term democracy
for something that is not related to representative government. The present
connotation of the word refers so much to parliamentary representation that it
can be confusing to use it for mechanisms that are equal to democratic decision
making at other levels than the State. This is one of the reasons why Rubin
suggests that we should abandon the term in political analysis.28 It seems better
to use the word legitimacy instead, even though this term does not have a fixed
meaning.29 The legitimacy of a rule could refer to the political procedures used
to put that rule into place, but also to its moral contents or acceptance. In my
view, it is this latter meaning that is most important: the legitimacy of a rule
refers to the perception that it is the most desirable or proper rule to be adopted
in the given circumstances.30 This makes legitimacy dependent not only on the
acceptability of those being affected by the rule but also on the acceptance by
society in general or by the academic forum.31 It still leaves open the question
of which criteria are decisive for this legitimacy to exist.
Political science tells us that democracy fulfils three different functions:
participation, accountability and transparency.32 Participation at the national level
traditionally consists of the parliamentary representation of everyone in every-
thing. However, when the polity is no longer defined along territorial lines or on
the basis of a people – as is the case with the type of rules discussed here – such
participation can no longer be based on State institutions. With the transnational-
ization of law, the more effective forms of participation are likely to be based on
groups, creating new political communities along functional lines.33
Accountability can be defined as the principle that one is responsible for
one’s conduct vis-à-vis another person or organization. Such responsibility
28 Rubin (2001, pp. 711–92).

29 Cf. Delbrück (2003, pp. 29–43).
30 Cf. Scott (2001): ‘a generalized perception or assumption that the actions of
an entity are desirable, proper, or appropriate within some socially constructed system
of norms, values, beliefs, and definitions.’ Also see Black (2008).
31 In the definition of Scott (2001), it is only the perception of the governed that
is important.
32 Cf. Kingsbury et al. (2005, pp. 15–61).
33 Cf. Delbrück, o.c., (2003) at p. 38: ‘functional authorities of varying
geographical scope run by individuals selected by lot from among those with a mater-
ial interest in the issue in question’. Also see de Burca, o.c., (2008) at p. 123 and Hirst
(1994) at p. 19: affairs of society should as much as possible be managed by voluntary
and democratically self-governing associations as these have more information than
central bureaucracies.
usually includes the obligation to inform that person or organization about

one’s past or future actions, to justify them and to be held responsible in case
of misconduct.34 Accountability is thus primarily an ‘ex post governance
mechanism’. Traditionally, accountability at the national level is an electoral
one: officeholders have to account to those who are entitled to vote for their
election. If their performance is insufficient, they will not be re-elected. But
this is not a very precise or efficient accountability mechanism: voters do not
provide reasons for their votes and can be motivated by many other factors
than the standards one wants the office-holders to meet. There are many other
types of accountability one can think of,35 including fiscal accountability
(through audit regimes), legal accountability (the account-holder is held liable
for a violation of a standard), hierarchical accountability (of employees vis-à-
vis their superiors) and accountability through the market (the satisfaction of
those affected by a policy decides its success).
Transparency, finally, refers to decision making that is open to the gaze of
others (does not take place behind closed doors) and that is based on freely
available information. As a political norm, however, transparency is rather
vague:36 it does not make clear who these others are and which information
exactly is to be shared with them. Surely, there can be no complete access to
government information for everyone and for everything. This makes it impor-
tant to ask why we actually need transparency. In any democratic theory, the
need for openness of government follows from the fact that people can only
on the basis of such a theory make a well-informed, rational choice of the
government by which to be governed. It also facilitates the public debate
crucial in a democratic society and a prerequisite for holding government offi-
cials accountable.37 Again, this presumes that the transparency requirement is
directed towards the public at large. Another approach is to apply the trans-
parency requirement to the group of people most affected by the rules in ques-
tion. If an important condition for a democracy to be successful is the quality
of the deliberation,38 it may well be that informed deliberation among special-
ists leads to greater legitimacy than a general debate among non-specialists.
34 Cf. Schedler (1999a, pp. 13–28).

35 See, for example, the overview, with many references, by Garn (2001, pp.
571–99) at p. 578.
36 This is the point made by Fenster (2006, pp. 885–949) at p. 889.
37 See for all these aspects Fenster, o.c., (2006, pp. 895 ff.), with reference to
James Madison’s statement that ‘[a] popular Government, without popular informa-
tion, or the means of acquiring it, is but a Prologue to a Farce or a Tragedy; or, perhaps
both.’
38 Deliberative democracy emphasizes the importance of a free, rational, debate
among citizens, however difficult this may be in practice. The obvious references are
to Rawls (1993) and to Habermas (1992).
If we accept these factors as the building blocks of democracy, we have a

tool to deal with legitimacy at the transnational level. One important advan-
tage of this approach is to recognize that these criteria can be met to a greater
or to a lesser extent. Often, we do not need the full participation of everyone
when dealing with certain issues. Likewise, accountability and transparency
are also gradual concepts.39 The exact levels of participation, accountability
and transparency to meet the legitimacy requirement can thus be made depen-
dent on several factors.40 One factor concerns the type of rules: rules of a more
technical nature require less ‘democratic’ legitimacy than rules about issues
that are already highly politicized.41 Thus, legitimacy can lie in the merits of
the decision-makers (such as their ability to give independent expertise42).
Another factor concerns the level of harmonization: minimum harmonization
may need less legitimacy than full harmonization.
It should be emphasized that this approach also works in the other direc-
tion: rules that did pass through the national democratic decision-making
process may not meet the requirements of legitimacy as just defined.43 The
mere fact that a democratic process took place is then not enough to conclude
that a rule is sufficiently legitimate.44
4 THE LEGITIMACY OF THE DRAFT CFR

With the framework provided in the previous section, we are now able to turn
back to the Draft Common Frame of Reference for European private law. Are
Van Zelst and others right in claiming that private law should come about in a
democratic process with the involvement of national parliaments (the ‘democ-
racy thesis’) or is there another way to legitimate the rules of the DCFR? In
this section, I provide three arguments as to why (European) private law may
not need a democratic basis in the traditional sense because it can secure the
three building blocks of democracy in another way. After a discussion about
accountability (A) and participation (B), the section on transparency (C)
reveals that the nature of private law partly stands in the way of considering it
as an area subordinate to policy making.
39 De Burca, o.c., (2008) at p. 107 claims that we need to have ‘the fullest possi-
ble participation and representation of those affected.’
40 See Héritier (1999, pp. 269–82) at p. 270.
41 See, for example, Fischer (1990).
42 De Burca, o.c., (2008) at p. 122.
43 There is no need to refer to the extensive literature on public choice. Instead
of all, see Farber and Frickey (1991).
44 Democratically made deficient legislation can lead to people questioning the
usefulness of democracy as a whole. See Goldring (1996).
4.1 Accountability: Legitimacy through Jurisdictional Competition
In the brief characterization of accountability provided above, it became clear

that the core of the concept consists of a relationship between the relevant
actors and a forum and that such a relationship can be established in different
ways. If the rule-maker cannot be held responsible in the traditional way (by
being voted away), what could be an alternative? Without claiming this is the
only possible way of enhancing the legitimacy of transnational rules,45 I
believe that market accountability can be much more important in legitimat-
ing law than is usually assumed. This is in particular true in those areas of law
that contain many non-mandatory rules, such as the law of contract. If market
accountability in, for example, schools means that good schools attract
students whereas bad schools are held accountable by students that leave, a
similar mechanism can operate in the fields of facilitative law.
This view is, of course, not new. The theory of jurisdictional competition,
as developed by Charles Tiebout,46 emphasizes that when parties have the
freedom of choice as to the applicable legal regime (as is the case in large parts
of contract law) they will choose the regime they like best. Such jurisdictional
competition is an alternative to allocating local public goods in a political
decision process: the preferences of citizens can be established by allowing the
citizens to choose a particular legal regime, even without these citizens
moving physically.
There are limits to establishing preferences by jurisdictional competition.47
The most important limit arises when law is regarded as mandatory by the
State. It is difficult to imagine that such mandatory national law would be set
by an authority beside the national lawmaker because this concerns the funda-
mental social contract between the governed and the government.48 But when
designing the structure of relationships between economic entities, primarily
driven by market efficiency, it is not clear why it is the State that should guar-
antee a democratic process.49
But even if this restriction is accepted, jurisdictional competition remains an
important alternative to centralist lawmaking in the area of contract law (the
backbone of the DCFR). This does mean, however, that we have to abandon the
idea that there is only one legitimate group responsible for lawmaking. Too
45 One other way of enhancing accountability is to label and rate types of self-
regulation or even of contracts: see Ben-Shahar (2008).
46 Tiebout (1956, pp. 416–24). Also see Ogus (1999, pp. 405–18).
47 See in more detail, also on the question of ‘voice’ and ‘exit’, Smits (2008, pp.
49 ff.).
48 Thus Hadfield and Talley (2006, pp. 414–41) at p. 415.
49 Cf. Hadfield and Talley, o.c., (2006) at p. 415.
often, only nation-states are seen as legitimate democratic lawmakers. But in

an increasingly globalizing and interconnected world, there is no necessary
relationship between the nation-state and the legitimacy of law. The number of
legal regimes need not be the same as the number of nation-states.50
Consequently, multiple, overlapping authorities may come to coexist, with
individuals primarily choosing their own authority.51
Particularly in the context of the Common Frame of Reference, we should
be aware that choice is essential for its proper functioning. The DCFR
provides definitions of legal terms, fundamental principles and model rules
and can be used as a ‘toolbox’52 by the European legislator, as a source of
inspiration for the ECJ and national courts, and as an optional code for
contracting parties that want to make the CFR the law applicable to their
contract. All these functions imply that the DCFR is only applicable if the rele-
vant actors prefer it over national law. If the DCFR is not made applicable by
the contracting parties or is not used as a source of inspiration by legislators
or courts, the drafters are held accountable for the lack of success of this
particular legal regime.
4.2 Participation: The Experience with Optional Instruments
It was seen above53 that the legitimacy of rules does not necessarily have to be
based on the participation of everyone in everything. The adherents of the
‘democracy thesis’ set out in Section 1 seem to suggest the opposite: since all
law is politics, changing the law requires a political decision by a parliament
that should be involved in both the drafting and the adoption of the rules. This
is a rather traditional view of democratic input and one that is clearly contra-
dicted by our experience with the drafting of civil codes.
First, even mandatory national civil codes were often drafted without much
input from parliaments. It is true that the final decision about the enactment of
a code is taken by national parliaments (and when it would come to the intro-
duction of a binding European Civil Code, this should also be the case), but in
drafting the code the relevant decisions are usually made by the drafters them-
selves.54 This makes sense because of the often highly detailed and technical
questions involved in the drafting process. Only when it comes to politically
50 Cf. Fischer-Lescano and Teubner (2003–04, pp. 999–1046).

51 Cf. Tarrow (1998) and Héritier, o.c. (1999) at p. 276.
52 European Commission, Communication on European Contract Law and the
revision of the Acquis: the Way Forward, COM (2004) 651 final, O.J. 2005 C14/6, p.
14.
53 Section 3.
54 Also see van den Berg (2007).
sensitive issues (such as the establishment of the proper level of consumer

protection), parliaments should be involved. An important exception to this
working method was the procedure followed in the establishment of the new
Dutch Civil Code. Immediately after the start of the drafting process in 1947,
a list of questions about key issues was presented to the Dutch parliament.55
However, insofar as these questions involved matters of the Code’s structure
and other typically scholarly issues, I do not see how any parliamentary input
can be helpful. For instance, the question of whether a general action for unjust
enrichment should be part of the Code56 is not a question to be decided by
parliament.
Second, it should be re-emphasized that present efforts to Europeanize
private law – and in particular the work on the DCFR – will not lead to rules
that are binding in the same way as we are familiar with at the national level.
If the DCFR is primarily a source of inspiration for the European legislator and
the courts (or if it is at most an optional contract code), its legitimacy need not
be found in the traditional democratic decision-making process. This is
confirmed by the success of various optional instruments that came into place
without any input of parliaments in the drafting stage. Instead, the input
consisted of a parliamentary decision to adopt an already existing instrument
drafted by legal experts. The two most important examples of such instru-
ments are the American Uniform Commercial Code (UCC) and the United
Nations Convention on the International Sale of Goods (CISG). In these two
cases, the only ‘democratic’ input consisted of individual American state
parliaments (in the case of the UCC) and of national parliaments (in the case
of the CISG) adopting an already existing instrument. These experiences indi-
cate that parliaments may not necessarily be involved in the drafting of a
successful code.
4.3 Private Law: Design or Organism?
The third building block of democracy relates to the requirement of trans-

parency. If it is applied to rule making in the field of private law, it is my view
that, in particular, the quality of the deliberation is important: we have seen
before that informed deliberation among specialists may lead to greater legit-
imacy than a general debate among non-specialists. When it is applied to
private law, what comes closest to the transparency requirement is that new
statutes and case law are assessed on the basis of the already existing coherent
55 See in more detail Hesselink (2006, pp. 39 ff).

56 This was a question that had in fact to be answered by the Dutch parliament.
system, which provides us with the criteria to assess to what extent the new
rules fit into the existing normative order.57
At the same time, however, we should be cautious in applying the require-
ment of transparency to the field of private law as if this is just another policy
field. The reason for this relates to a more general understanding of private
law. It would only be necessary to render private law completely subordinate
to democratic decision making if it is a means to a (political) end.58 The ques-
tion is whether this view of private law as a matter of conscious design by
some legislator is in line with the nature of the field. Most of the time, private
law is seen as independent from State institutions, having a rationality of its
own.59 The private law system has developed over the ages in a long process
of trial and error.60 The spontaneous development towards the standards that a
community prefers provides this area of law with a rationality of its own which
is independent from most public aims.61
If we thus understand private law more as an organism than as a product of
explicit design, it becomes clear why democratic input in this area of law can
only have a limited impact. The Machbarkeit (‘makeability’) of the law of
contracts, tort and property is limited, and the view that private law is an
instrument with which to change the existing distribution of power and
riches62 should be regarded with suspicion. This would mean that private law
serves distributive justice, a view defended before by Anthony Kronman.63
The most important objection against this position is that distributive justice
requires a political decision to choose, out of all possible distributions of
wealth, one that best establishes the desired collective social, economic or
political goal. If private law is thus made part of establishing distributive
justice, it is made subordinate to this goal; if this goal is not reached, private
law fails. In my view, however, it is not the State that is to decide ex ante what
a just private law requires. At best, the result can be corrected ex post.64
Moreover, the redistribution of welfare through (in particular) contract law is
57 This can be argued for from different theoretical perspectives. See, for exam-
ple, Weinrib (1995) and Dworkin (1985).
58 Cf. Tamanaha (2006).
59 See, for example, Weinrib (1995); cf. for a general framework, see Jansen
(forthcoming, 2009).
60 This is not to deny there are differences between civil law and common law,
though not as profound as suggested by, for example, Glaeser and Shleifer (2001, pp.
1193–1229).
61 Cf. Hayek (1973–79).
62 Cf. Study Group on Social Justice in European Private Law, o.c., (2004, pp.
653 ff).
63 Kronman (1980, pp. 472–511).
64 Cf. Weinrib, o.c., (1995), pp. 211 ff.
doomed to fail because future contracting parties are not likely to contract with
‘weaker’ parties if they would run the risk of avoidance of their contract. This
is also the message of Charles Fried:65
Redistribution is not a burden to be borne in a random, ad hoc way by those who

happen to cross paths with persons poorer than themselves. Such a conception,
heart-warmingly spontaneous though it may be, would in the end undermine our
ability to plan and to live our lives as we choose.
The above does not imply that democratic input is never useful; it does imply,
however, that the degree of legitimacy is dependent on the type of law being
put into place. Facilitative law needs less legitimacy than mandatory law. Put
otherwise: (national) democratic input is useful in the case of interventionist
law (such as consumer protection and employment law) because preferences
as to the level of intervention differ between countries. In facilitative law, pref-
erences are better revealed by jurisdictional competition.66
5 CONCLUSIONS
The main argument of this chapter is that ‘democratic’ legitimacy does not
have to come about through territorial entities such as national parliaments.
There are other methods of legitimating law; which method is best depends on
a range of factors such as the type of rules and the level of harmonization. In
the case of the Draft CFR, it is important to realize that it is at most a source
of inspiration for (European and national) legislators and courts and an
optional code to be chosen by contracting parties if they believe it serves their
interests better than national law. This optional character of the DCFR must
mean something for its legitimacy. It is primarily the participation of the
mentioned actors that decides on the actual legitimacy of the non-binding
DCFR. This does not exclude that parliaments can still play a role – for exam-
ple, by ex post accepting ‘public acts characterized by expertise and rational-
ity’67 – but it is different from the role they have to play in setting mandatory
rules.
The approach set out in this chapter opens the possibility to investigate
whether the new types of law described in Section 2 meet the necessary
requirements of legitimacy. The mere fact that these types of law are often set
at the European or global level and do not pass through national parliaments
65 Fried (1981) at p. 106.

66 Garoupa and Ogus (2006, pp. 339–63) at pp. 341–42.
67 See Delbrück, o.c., (2003) at p. 40.
is, as such, not relevant in assessing their merits. What is relevant is to what
extent they meet the requirements of participation, accountability and trans-
parency. This differentiated approach, in which each new type of rules is
assessed on the basis of these factors, was applied here to the case of the
DCFR. It shows that the ‘democracy thesis’ cannot be accepted: new forms of
private law require new forms of legitimacy.
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Reference, Groningen: Europa Law Publishing.
Verbeke, A. (2008), ‘Negotiating (in the Shadow of a) European Private Law’,
Maastricht Journal of European and Comparative Law, 15, pp. 395–413.
Vogenauer, S. and S. Weatherill (eds) (2006), The Harmonization of European
Contract Law, Oxford: Oxford University Press.
Von Bar, C. et al. (eds) (2008), Principles, Definitions and Model Rules of European
Private Law: Draft Common Frame of Reference, Interim Outline Edition, Munich:
Sellier.
Weinrib, E.J. (1995), The Idea of Private Law, Cambridge: Harvard University Press.
2. Public accountability of transnational
rule making: a view from the European
Union and beyond
Deirdre Curtin*
1 INTRODUCTION
Governance beyond the state, in whatever institutional or informal forum it
takes place, largely lies beyond the control of national democracies and consti-
tutional structures. The core problem is that outside the confines of the terri-
torial nation states, executives are only to a very limited extent held to account
for their actions and inactions. National parliaments in particular have not kept
up with what their national executives are doing and not doing. While national
parliaments have stayed put within their own neatly nationally fenced off
compartments, the executive has developed into a strongly interwoven,
complex administrative network, beyond the horizons of many, maybe all
national parliaments. The national executive power operates outside of its own
national political and constitutional level. It is active and engaged in decision
making at the European level and at the international or global level. It has as
a matter of practice surmounted thinking in terms of hierarchical levels and
may even be considered as engaged in a more fluid and composite governance
process.1 This is even more the case for other, private, actors performing
public functions at the transnational or European level. It is moreover relevant
in this context not only that general rule-making processes may fall outside
domestic processes of political accountability but also that there are no coun-
tervailing forces, no or little checks and balances at the regional and global
levels of governance.
This chapter takes as its broad backdrop the growth of governance beyond
the state. In particular it highlights the shift of governance that has taken place
* Professor of European Law, University of Amsterdam and Professor of

European and International Governance, University of Utrecht. This is a revised and
expanded version of the paper I presented at the University of Stellenbosch, 12
December 2008.
1 Besselink (2007).
32
Public accountability of transnational rule making 33
across legal and political systems and the fact that a wide variety of groups,
organizations and networks are making authoritative rules and policies outside
the democratic and constitutional confines of the state.2 Governance – as
opposed to government – covers, among other things, policy coordination
between public and private actors, often across multiple levels of government
and through formal and informal networks of actors. Whereas ‘government’ is
traditionally understood as involving a distinction between who is governing
(the government as executive power) and who is being governed (the citizen),
‘governance’ at the very least blurs that distinction. There is a significant
erosion of the boundaries separating what lies inside a government and its
administration and what lies outside them.3
This contribution was originally written at the request of the organizers of the
final conference in Stellenbosch in December 2008 with a view to initiating a
broader debate among private lawyers on the relevance of themes of public law,
in particular those relating to democracy and accountability, to the manner in
which private law or rule making is increasingly taking place in our globalizing
world. The purpose of this chapter is threefold. Firstly, to consider the nature of
the phenomenon of a shift in governance and in particular its possible relevance
to (European) private lawyers. Secondly, to examine how this relates to our
existing understandings of democracy in the nation state. Finally, to consider
how we might apply more limited conceptualizations of accountability to rela-
tively new shifts in governance beyond the nation state. Can we develop democ-
racy beyond the nation state or should we instead rely on more limited and
confined understandings? This chapter offers what might be termed a European
Union perspective on these broad themes, drawing many of its examples from
the often highly institutionalized context of the European Union. At the same
time the argument is made that the debate – and some of the solutions – are of
relevance in a much wider global and also informal transnational context.
2 SHIFTS IN TRANSNATIONAL GOVERNANCE:

ACTORS, INSTRUMENTS AND LEVELS
2.1 Multi-Level Governance
The use of the term ‘governance’ even by private lawyers is becoming increas-
ingly widespread and accepted.4 It is used to indicate broader phenomena than
2 See in general Van Kersbergen and Van Waarden (2001).

3 See, too, Shapiro (2001, pp. 369–77).
4 See, for example, Cafaggi and Muir-Watt (2008).
what traditionally are accepted parts of a legal system as such. It indicates a

wider focus than that of the content of substantive rules as such, embracing a
link with institutions and institutional design both in a formal sense and more
informally. It implies a dynamic process in the sense that new forms of gover-
nance are emerging compared with the more traditional governing mecha-
nisms. It also implies a mixing or blurring of boundaries, public and private as
well as local, regional, national, transnational and global levels of governance
within the respective spheres.
Multi-level governance is the term used by some for the different layers and
interactions involved in decision making beyond that of the territorial State.5
The point is that the decision-making layers may be multi-level but paradoxi-
cally the political and administrative actors are often the same. In other words,
national ministers and national civil servants will appear on various political
stages – international, European and national – even though they may be play-
ing different roles in each. This also holds true for the non-state actors. At the
same time, the multi-level approach may in its focus on separate ‘levels’ be too
exclusive and limiting and imply a degree of hierarchy and of verticality that
may not be reflected in governance practices.
The so-called displacement/diffusion of national, state-based ‘politics’ is
one of the crucial contemporary ‘shifts in governance’.6 The adoption of
authoritative rules, norms and policies by actors and forms of governance
beyond the nation state is an increasingly widespread phenomenon. The ‘who,
what and where’ questions are the highly salient issues of who makes the rules
in the contemporary world; how, in the sense of what sort of binding or other
instruments; and where, at what governance level?
2.2 Actors
The actors basically consist of an extended notion of executive power, politi-

cal, administrative and beyond to private and non-state actors. In my book on
the executive power of the European Union7 I take a broad-brush approach to
executive power: it is residual; everything that is not specifically legislative or
judicial is ipso facto executive, at least in constitutional terms. Moreover, I
also take an inclusive approach: it embraces the political, the administrative
and what I term the ‘satellite’ actors, the agencies and the networks of actors.
Inherent in notions and practices of governance is law or rule making by actors
other than politicians (and judges), namely technocrats (either civil servants or
scientific experts of one kind or another) and/or private actors. It covers
5 See, for example, Hooghe and Marks (2003, pp. 233–43).

6 Kohler-Koch (2003).
7 Curtin (2009).
legally structured arrangements as well as less formal arrangements and the

norms emerging within them. What are the links of private actors with more
public actors? Do they operate in ‘the shadow of’ the political level or
‘government’ and what forms does or may that take?
The transfer of governmental decision-making authority to outside actors
occurs along a continuum. Thus, at one end of the spectrum it covers very
loose coordination processes involving stakeholders and other non-govern-
mental actors. But at the other end it covers actors that are associated much
more closely with the core political actors, either at the national level or at the
international or supranational level. Two kinds of non-state actors are particu-
larly relevant in this context: experts and networks of actors. Experts are
largely private actors who deliver knowledge and information in rule- and
lawmaking processes. Their participation is often justified in terms of what is
called ‘output legitimacy’ (see below). An institution or process enjoys output
legitimacy if the results it delivers meet popular demand and expectations and
if its performance is perceived as satisfactory. Experts function as an addi-
tional source of legitimacy for policy making, based upon the assumption that
scientific knowledge can help to distinguish between what is right and what is
wrong.8 Experts often participate in one form or another in various commit-
tees at the level of EU governance.
One example of committee governance in the area of European private
lawmaking is the different advisory bodies and committees that played a role
in the process of drafting the Consumer Sales Directive of 25 May 1999.9
After the Commission published the ‘Green Paper on Guarantees for
Consumer Goods and After-sales Services’10 a number of advisory bodies and
committees came into play to help the drafting and negotiation of this direc-
tive. This included advisory opinions by the European Economic and Social
Committee (EESC)11 and by the Consumers Committee (currently the
European Consumer Consultative Group (ECCG).12 In addition to these two
institutionalized advisory bodies in the area of consumer policy, business
8 See, further, Benz and Papadopoulos (2006).

9 Directive 99/44/EC of the European Parliament and of the Council of 25 May
1999 on certain aspects of the sale of consumer goods and associated guarantees, OJ
L171, 1999, pp. 0012–0016.
10 See Green Paper on Guarantees for Consumer Goods and After-sales Services
of 15 November 1993, COM (93) 509, OJ C338, 1993; also see Bianca and Grundmann
(2002) at p. 23.
11 European Economic and Social Committee, Opinion on the Commission
Proposal for a Parliament and Council Directive on the Sale of Consumer Goods and
associated Guarantees of 27 November 1996, OJ C66/5, 1997.
12 Commission Decision (2003/709/EC) of 9 October 2003 replaced the
Consumer Committee with the European Consumer Consultative Group (ECCG).
interest groups such as the Union of Industrial and Employers’ Confederations

of Europe,13 EuroCommerce and the European Engineering Industries
Association (ORGALIME)14 were involved. In later stages of the adoption of
the Consumer Sales Directive, the actors on the other side of the continuum,
much more closely associated with the core European – and Member State –
political actors, are the working committees of the Council of Ministers and
the European Parliament. The narrative of the adoption of the Consumer Sales
Directive shows the interwoven, networked governance, in the area of private
lawmaking in Europe, of private interest groups, non-state actors, and institu-
tionalized advisory bodies that are active both on community and state level.15
The more formal ‘political’ actors may in turn function as a magnet for
broader networks. Political scientists argue that no centre of decision making
can be located in a network; power is dispersed among more or less
autonomous actors, decision making is a negotiating process and ‘government
does not have enough power to exert its will on other actors’.16 Lawyers have
difficulty in coming to grips with their fluidity and lack of procedures and
‘hard’ (enforceable) results. Yet the expectation is often that network forms of
governance will lead to decisions with strong ‘output legitimacy’ because their
content is more technically adequate or because they are better accepted by
target groups. However, the consequences of network governance for democ-
racy and accountability have long been neglected. The main problems lie in
their weak visibility and in the fact that networks tend to be ‘uncoupled’ from
the normal democratic circuit.17
Networks may consist of state actors joining together in order to discuss
and draw up rules outside any formalized institutional forum. There are for
example networks of national regulators with law- or rule-making tasks at the
European level. These may be quite institutionalized, such as the role of the
Committee of European Securities Regulators (CESR). This is a body
composed of national regulators who, thereby, perform a European function,
but who are also members of international committees and organizations oper-
ative in the field of financial services. The greatly increased role and powers
of this Committee operate with significant input from ‘market participants’
13 This organization in 2007 changed its name to BusinessEurope, The

Confederation of European Business. The organization represents Member States’
business federations and dates back to the European Community for Coal and Steel.
14 Orgalime represents the mechanical, electrical, electronic and metalworking
industries in 18 European countries.
15 See generally Jansen and Michaels (2008, pp. 527–39); also see Joerges
(2004) and Schmid (2002).
16 See further Kickert (1993, p. 275). See also Harlow and Rawlings (2007, pp
542–62).
17 See further Papadopoulos (2007, pp. 469–86).
(the Market Participants Consultative Panel) and ‘expert groups’.18 Recently

it was proposed to empower CESR with the task of licensing Credit Rating
Agencies in the EU and to monitor their performance.19 The International
Competition Network (the ICN) is an example of a much more informal type
of network with an impact difficult to assess. Its much more institutionalized
and legalized EU counterpart is the European Competition Network (the
ECN). Other examples may also come from looser coordination processes
undertaken within the context of the so-called ‘open method of coordina-
tion’.20
In the field of private lawmaking the mixed role of public and private actors
is salient. In the field of European private law one finds examples right across
the spectrum of law or rule making. Thus we have the adoption of formal EU
laws (harmonization directives in one form or another)21 adopted largely by
the formal non-state supranational political actors (the Commission, the
Council of Ministers and the European Parliament). These will be ‘interpreted’
by the Court of Justice in Luxembourg.22 Private law rules may of course in
the EU institutional context be implemented in more detail by so-called ‘comi-
tology’ committees composed largely of national civil servants and scientific
experts but acting under the auspices of the European Commission.
At the same time, there may be a much more ‘private’ expert input into
lawmaking. An example is the work that has been done in drafting a Common
Frame of Reference on European Contract Law by a highly specialized ‘expert
group’ (consisting largely of law professors from various jurisdictions). In the
opinion of some this constitutes an exercise of private lawmaking (behind
closed doors) that was intended to be merely ‘rubber-stamped’ by the
Commission as supranational public actor. The actors involved in composing
18 http://www.cesr-eu.org/.
19 See De Larosiere et al. (2009), para. 67.
20 See further Sabel and Zeitlin (2008, pp. 271–327).
21 See here for instance the directives that together form the ‘consumer acquis’:
Council Directive 85/577/EEC to protect consumers in respect of contracts negotiated
away from business premises; Council Directive 90/314/EEC on package travel, pack-
age holidays and package tours; Council Directive 93/13/EEC on unfair terms in
consumer contracts; Directive 94/47/EC on the protection of purchasers in respect of
certain aspects of contracts relating to the purchase of the right to use immovable prop-
erties on a timeshare basis; Directive 97/7/EC on the protection of consumers in respect
of distance contracts; Directive 98/67EC on consumer protection in the indication of
the prices of products offered to consumers; Directive 98/27/EC on injunctions for the
protection of consumers’ interests; Directive 99/44/EC on the sale of consumer goods
and associated guarantees.
22 See Smits (2006, pp. 57–104).
the Draft Common Frame of Reference (hereafter Draft CFR)23 are all legal
scholars, combined in two main groups: the Study Group on a European Civil
Code (SGECC) and the Research Group on EC Private Law (Acquis Group).
The current draft is the result of the work of hundreds of legal scholars from
all Member States. The European Commission, however, has primarily funded
the project since 2005 as a ‘Network of Excellence’ within the Sixth
Framework Programme.24
Interestingly and perhaps quite specific to the character of private law as
historically one of the most ‘scientific’ areas of legal scholarship,25 even the
internal evaluation of the Draft CFR is carried out by academic fora, notably
the Association Henri Capitant des amis de la culture juridique française and
the Société de législation comparée, which have already published ‘Principes
contractuels communs’ and ‘Terminologie contractuelle commune’.26
Furthermore, the European Parliament, indicating the possible ‘political’
nature of private lawmaking and in particular the current Draft CFR itself, has
contracted out the evaluation of the underlying social values of the articles of
the DCFR to be assessed by an academic research group.27 This research
group was highly involved in the drafting of the DCFR via their participation
in the Study Group on a European Civil Code, but at the same time was part
of a more critical group of academics that expressed their political concerns
about the role of social justice in the process of the activities of the
Commission in the area of private law.28
This identity association of experts reveals the enormous influence acade-
mic scholars may have in the area of private lawmaking. They may in fact be
considered by some to be taking essentially ‘political’ decisions, evaluating
and assessing the social values of the rules they themselves have drafted. The
ideological divides are debated by academics and the outcome of these debates
is then presented to the European Commission or the Parliament.
23 Von Bar et al. (2008).

24 Id.
25 See inter alia, Merriman (1969); also see Zweigert and Kotz (1998).
26 See Von Bar et al., supra note 23.
27 See Specific contract no. IP/C/JURI/FWC/2006-211/LOT3/C1/SC2 imple-
menting the framework service contract no. IP/C/JURI/FWC/2006-211/LOT3/C1, on
the values underlying the draft common frame of reference: what role for fairness and
‘social justice’? See the study by The Centre for the Study of European Contract Law,
University of Amsterdam: Hesselink (2008); PE 408 312 – IP/A/IMCO/ST/2008-11;
IP/C/JURI/FWC/2006-211/Lot3/C1/SC2.
28 See the Study Group on Social Justice in European Private Law (2004, pp.
653–74).
2.3 Instruments
The second issue relates to the nature of the instruments or measures agreed to
or adopted: what is their normativity and what are the implications of the fact
that they may be ‘soft’ in legal terms? The term ‘hard law’ is often used to refer
to legally binding obligations that are precise (or can be made precise through
adjudication or the issuing of implementing regulations) and that delegate
authority for interpreting and implementing the law. This would include, for
example, at the level of the EU legal order, in any event, formal treaty-based
provisions as well as what can be termed ‘secondary legislation’ and delegated
and implementing legislation as we have mentioned above.
This is not to deny that non-binding rules can be legally significant and
form part of the legal order in question. Indeed, private lawyers seem to rather
easily accept this proposition. We see that clearly with the emphasis that is
placed on codes of conduct, self-regulation, co-regulation, benchmarking and
other non-binding measures. The temptation to depart from formal methods of
lawmaking has already existed for quite some time and has led to the produc-
tion of open-ended standards, flexible guidelines and other forms of ‘soft law’
as opposed to formal rules and ‘hard law’. For example, in the discussion of
‘new governance’ in the EU, the concept of ‘soft law’ is often used to describe
governance arrangements that operate in place of, or along with, the ‘hard law’
that arises from binding legal instruments for European integration. The main
features of this governance mode consist of setting framework goals (1) and
indicators (2) to measure achievements of more or less autonomous actors (3)
that in return for their autonomy have an obligation to report and whose deci-
sions are open to peer review (4). New governance methods lack features such
as obligation, uniformity, justiciability and sanctions and are contrasted, some-
times positively, sometimes negatively, with hard law as an instrument for
European integration.
The Draft CFR is for example meant to be a tool for making European
contract law more coherent.29 It was to serve as a ‘toolbox’ for the revision of
the Aqcuis Communautaire, but also should ‘provide for clear definitions and
on best solutions found in Member States Legal orders’.30 At one point it was
indeed envisaged as the basis for an optional European Code for European
contract law. However, the idea of an optional European Civil Code, either
only in the area of contract law or more generally, has moved, it seems,
29 See the Commission’s ‘A more Coherent European Contract Law, an Action

Plan’, of 12 February 2003, COM (2003) 68.
30 See European Contract Law and the revision of the acquis: the way forward
(2004, 651 final) at p. 3.
perhaps temporarily, into the background.31 The European Commission has

indicated that it aims for a less ambitious revision of eight important directives
in the field.32 This would mean that the public and political actors would
assume their normal role in this regard and could give rise to fewer legitimacy
concerns (see further below).
The Draft CFR contains definitions, rules on the consequences of private
legal acts, general rules on formation, contractual obligations, specific
contracts, general rules on tort liability, unjust enrichment, and so on. And the
academic work in this area goes on. The Draft will in the future be the basis
for an actual common frame of reference, and is already being used as a tool-
box for the revision of the European Consumer acquis.33 Despite the
Commission’s reprioritization, then, clearly the European Commission is still
investing in this project, especially when taking into account that the
Commission has launched an internal selection process with the aim of iden-
tifying which parts of the Draft CFR will be integrated into a forthcoming
document, such as a Commission White Paper on a Common Frame of
Reference. Moreover, the European Parliament has requested to be involved in
the selection and identification of articles from the Draft CFR by the
Commission, because it feels this will be a ‘highly political exercise’.34
2.4 Levels
The third issue is the question of the level of governance: from beyond the
territorial states to either the regional level of governance or the more global
level of governance. The shifts in governance and public authority in recent
decades away from the territorial state towards different forms and levels of
governance, within and beyond the parameters of the traditional nation state,
have not been matched by a shift in accountability relationships beyond those
applicable within the confines of the territorial state. This results in gaps in the
accountability of (public) actors for the exercise of public authority. Though
31 See the Second Progress Report on The Common Frame of Reference, of July
2007 (2007, p. 447).
32 See European Contract Law and the Revision of the Acquis: The Way
Forward, of October 11 2004, (2004, p. 651); also see the Green Paper on the Review
of the Consumer Acquis, February 2007 (2007, p. 744).
33 See Programme of the Czech Presidency in the Council of the European
Union in the Area of Justice and Home Affairs, Council of the European Union
(Brussels, 5 February 2009, 6155/09); also see Proposal for a directive of the European
Parliament and of the Council on consumer rights, COM(2008) 614 final, 2008/0196
(COD).
34 European Parliament resolution of 3 September 2008 on the common frame
of reference for European contract law (P6_TA-PROV(2008)0397).
accountability gaps may well have always existed even where public powers
were predominantly exercised within the confines of the state, the shift of
powers away from the state have made the gaps much more politically salient
and acute.
It is in response to the shifts in governance and the slow attempts to close
gaps in the control over the exercise of public power that scholars have
engaged in a much more fundamental and wide-ranging discussion of the
potential and limits of the concept of accountability as a (political) mechanism
for controlling public power, wherever exercised and in whatever form.
Initially, these discussions took place mainly within the disciplines of interna-
tional relations as well as public administration; in recent years, however, this
theoretical debate has started to trickle into the manner in which some inter-
national law scholars study the concept of accountability and its application in
practice in the international legal order. The next part of this chapter will
explore, in a preliminary manner, the relationships between the ‘meta’ themes
of any political system, legitimacy and democracy, before explicitly focusing
on the more ‘second-order’ theme of accountability and its possible opera-
tionalization in practice.
3 APPROACHES TO LEGITIMACY AND DEMOCRACY

OF TRANSNATIONAL GOVERNANCE
3.1 Approaches to Understanding Legitimacy in the EU
Within contemporary debates, legitimacy is more often invoked than

described and it is more often described than defined. Legitimacy can, in very
general terms, be said to represent an umbrella evaluation that, to some extent,
transcends specific adverse acts or occurrences; thus legitimacy is resilient to
particular events, yet it is dependent on a history of events.35 Over the years,
social scientists have offered a number of definitions of legitimacy, with vary-
ing degrees of specificity. First, legitimacy may be understood in purely
formal (legal) terms in the sense of the manner in which a particular structure
of authority was constituted and acts according to accepted legal rules and
procedures. Although many political scientists and lawyers focus traditionally
on formal legitimacy, some stress the primordial importance of what is termed
social (empirical) legitimacy. Social legitimacy refers to the affective loyalty
of those who are bound by it, on the basis of a deep common interest and/or a
35 Suchman (1995, pp. 571–610) at p. 574.

strong sense of shared identity.36 Social legitimacy will usually have to be

created over time simply by the practice, and habit, of doing things together,
and there is only so much that can be done to accelerate this process by
symbol-building campaigns and communications strategies.
It is precisely with regard to social legitimacy that the EU has a long-stand-
ing problem – and this is widely recognized, not only by scholars37 but also in
the studies done in the context of EU treaty referendum defeats. However
democratically legitimate the Member States may be in their own jurisdic-
tions, a sense of social legitimacy will not be created simply by the attribution
of rule-making competences to common institutions – although the welfare
gains through integration, which should be made possible by the creation of
those institutions, can be expected to facilitate it.
There are, however, many reasons to expect social legitimacy in particular
to be an acute problem for the EU, and to remain so for the foreseeable future.
The EU is, in the words of Lord:
A new and unfamiliar political system; it has substantial powers to go into the nooks
and crannies of member societies; its rules over-ride those made by national insti-
tutions; it takes decisions that affect ordinary lives; it demands sacrifices, some-
times with uncertain long-term reward; it takes from some in order to give to others;
it affects deeply held values, including basic feelings of identity; and it is a large
political system that often seems physically distant to its citizens.38
Should we then really be surprised in this intrusive and uncertain context that
citizens feel a sense of alienation of feeling and of understanding from the EU
as a whole? With regard to the executive power they can only feel that they do
not elect it for the functions it carries out, either at the national level or at the
European level, and the deficit of affective loyalty cannot in these circum-
stances be considered surprising. But they also often do not see it and do not
recognize it for what it is (with elements of national executive power interwo-
ven with the EU level).
A second way of looking at the legitimacy challenge is through the lens of
input legitimacy versus output legitimacy. Output legitimacy means that
people agree that a particular structure should exist, and even participate in
rule making, because of the benefits it brings. Social acceptance is thus instru-
mental and conditional, as well as independent of an affective relation. Input
legitimacy, on the other hand, means that social acceptance of the structure in
question derives from a belief that citizens have a fair chance (however under-
36 See further Habermas (1979).

37 Weiler (1991, pp. 2525–36).
38 Lord (2000), http://www.one-europe.ac.uk/pdf/P3Lord.PDF.
stood) to influence decision making and scrutinize the results. The ability to
influence and hold accountable can be realized either through forms of repre-
sentation which are held to be legitimate or through direct participation which
is held to be meaningful, or through some combination of the two. On the
whole, the legitimacy of the EU and its decisions has tended to be focused on
the output side of the equation39 rather than on the input side.
In terms of Lincoln’s famous description of the main elements of democ-
racy, input-oriented legitimacy refers to government by the people, whereas
output-oriented legitimacy refers to government for the people. The basis of
legitimacy of these different kinds or rather different aspects of democracy is
different.40 From the perspective of input-oriented legitimacy, political
choices are legitimate if and because they reflect the ‘will of the people’ – that
is, if they can be derived from the authentic preferences of the members of a
community. The input perspective derives its democratic legitimacy very
largely from a pre-existing collective identity. In so far as a collective identity
does not exist at the level of the Union, input-oriented legitimacy is out of
reach for the EU for the foreseeable future. This can be considered true at the
level of democratic representation via a compound system of representative
democracy (see below) or via the methods of direct democracy (in particular
the use of referendums at crucial decision-making moments).
From the perspective of the more modest form of legitimacy – output-
oriented legitimacy – political choices are legitimate if and because they effec-
tively promote the common welfare of the constituency in question.41
Government for the people derives its legitimacy from its capacity to tackle
problems requiring collective solutions. Identifying collective solutions still
presupposes the existence of an identifiable constituency, but what is required
is no more than the perception of a range of common interests that is suffi-
ciently broad and stable to justify institutional arrangements for collective
action.42 Output-oriented legitimacy is thus interest-based rather than identity-
based.43
It is often assumed that input legitimacy is not possible in the context of the
EU political system for the major structural reasons (no demos, no collective
identity, no European public sphere, and so on). Yet empirically it is notewor-
thy that there has been movement both in the political (and even treaty reform)
debate as well as in practice to introduce elements of a more participatory
approach to executive rule making, more grounded in theories of deliberative
39 See, in particular, Scharpf (1999) and Majone (1996).

40 See further Thomassen and Schmidt (2004).
41 Scharpf (1999, p. 6).
42 See too Thomassen and Schmidt (2004).
43 Scharpf (1999, pp. 11–12).
democracy and input legitimacy than might at first sight be assumed.44

Deliberative democracy is in fact an ideal of political legitimacy. It claims that
political decisions are ideally legitimate when they are made through a delib-
erative procedure, which implies publicly exchanging arguments ‘offered by
and to participants who are committed to the values of rationality and impar-
tiality’, and in which all those affected by the decision can take part directly
or though their representatives.45
For some years now the perception among some scholars and practitioners
has been that the model of deliberative democracy can have a role to play in
increasing democratic legitimacy in the EU. In particular, the perspective is
that the ‘civil society sphere’ has a potentially significant role to play in widen-
ing and expanding the scope of the public debate at the EU level. Kohler-Koch
opines, for example, in recent writings that ‘civil society actors can contribute
to democratic accountability if their intervention empowers citizens to evalu-
ate executive behaviour, to pass a judgement and to impose consequences’.46
Democratic accountability is used here specifically in the sense of ‘we, the
people’ being able ‘to reject one set of office-holders and public policies in
favour of another, and to do so in a way that is genuinely effective’.47
3.2 Understanding and Conceptualizing (EU) ‘Democracy’
One possible analysis of the shift in governance is certainly in terms of a

democratic challenge at different levels. If we take EU lawmaking as our
example, the challenge is to democratize first at the level of the EU political
system itself; secondly, at the level of the national political system; and thirdly,
at the level of the often intricate interactions between the two. This description
already indicates that there is unlikely to be a single solution for Europe’s
democratic challenge at any level, since national democracies are not only
different but have been affected in critically different ways by ongoing
processes of European integration.
At the same time, a word of caution is in order. It is dreadfully difficult even
in the more specific EU context to agree on a common definition of ‘democ-
racy’ that would cut across strong national democratic traditions both institu-
tionally and in terms of underlying values.48 Indeed there are those who argue
that democratic theory itself requires a major revamping if anything approach-
ing transnational democracy (and EU democracy) is to be envisaged in the
44 See further, in detail, Mendes (2010).

45 Elster (1998, p. 8).
46 Kohler-Koch (2010, forthcoming).
47 Gustavsson (2009, pp. 35–47) at p. 36.
48 See further the dedicated website http://www.connex-network.org/.
contemporary world.49 This latter approach would deny that it is possible to

‘upload’ a conception of national democracy to the EU and/or transnational
level.
A number of broad strands can be discerned in the existing democratization
literature. De Búrca summarizes them well.50 Firstly, there is the denial
approach: the claim that there is no democratic deficit with regard to transna-
tional (or even EU) governance; this is ‘myth’, and democracy is adequately
provided by the national level.51 Secondly, there is the wishful-thinking
approach: that transnational governance can be readily democratized, mainly
by using national models of democracy and applying them beyond the state.
There is quite a bit of evidence of this approach in institutional reform debates
of the EU in particular. Thirdly, what seems to be the dominant approach with
regard to wider transnational processes is the argument that democracy can
simply not be transposed from the national to the transnational arena and that
other ‘compensatory mechanisms’ need to be found instead of democracy.
Finally, De Búrca herself proposed the democratic-striving approach that
acknowledges the difficulty and complexity of democratizing transnational
governance yet insists it is necessary, and identifies the act of continuous striv-
ing as the source of legitimacy and accountability.
In the spirit of her analysis I would locate my own approach as fitting
within her fourth alternative approach, the broader ‘democratic-striving’
approach.52 Yet in the light of the fact that the concept of democracy is so diffi-
cult to conceptualize and apply in a context that concerns lawmaking and other
activities by actors beyond that of the territorial state, I would initially focus
instead on a precise and limited conceptualization of accountability.
Accountability can in fact be construed as an important organizing principle of
democracy resting upon specific standardized procedures.53
4 CONCEPTUALIZING AND APPLYING PUBLIC

ACCOUNTABILITY
4.1 Accountability Relationships
What can be designated the original or ‘core’ sense of accountability is that
49See, for example, Bohmann (2007).

50See De Búrca (2008, pp. 221–78).
51For example Moravcsik (2004, pp. 336–63).
52See too for elements of this approach Hesselink (2009, pp. 919–71) at pp.
964–6. See, too, Verbeke (2008, pp. 395–413) at p. 412.
53 See, in general, Curtin and Wille (2008).
associated with the process of being called ‘to account’ to some authority for
one’s actions. Such accountability has a number of features: it is external, it
involves social interaction and exchange, and it implies rights of authority in
that those calling for an account are asserting rights of superior authority over
those who are accountable, including the rights to demand answers and to
draw consequences, possibly including the imposition of sanctions. This sense
of accountability is in line with the broad sense that Grant and Keohane (2005)
describe: ‘accountability’ as involving the justification of an actor’s perfor-
mance vis-à-vis others, the assessment or judgment of that performance
against certain standards, and the possible imposition of consequences if the
actor fails to live up to applicable standards.
In the context of a democratic state, the key accountability relationships in
this core sense are those between citizens and the holders of public office, and
within the ranks of office holders those between elected politicians and
bureaucrats. Such accountability relationships are obviously familiar terrain
for lawyers at the national level, much less so at the international level. Indeed,
at the international level where the principle of democracy has made only a
limited entry at the level of the international legal order itself as well as with
regard to the institutionalization of international organizations, a broad
concept of ‘accountability’ is less familiar. International lawyers have tradi-
tionally focused on well-established legal principles such as state responsibil-
ity, and the operationalization of a broader concept of accountability in the
sense of an actor being held to account in an iterative and interactive process
is still nascent.
In recent years it has in particular been in the context of the European
Union that a rather explicit discussion has taken place on core accountability
issues such as how voters can make their elected representatives answer for
policies, how legislators (at both the national and the European levels) can
scrutinize the actions of (European and national) public servants and make
them answerable for mistakes, and so on. In fact, that discussion even goes so
far as to enable Walter van Gerven, a prominent European legal scholar, actu-
ally both a public lawyer and a private lawyer, to rather provocatively ask,
‘Which form of accountable government for the European Union?’54 One can
hardly envisage asking an equivalent question for any other international orga-
nization.
Much less effort has gone into studying other manifestations of the inter-
nationalization of politics at other levels than that of the EU. The ‘backstage’
politics of international and informal policy preparation (committee processes,
bureaucratic politics and horizontal networks) and implementation remain
54 See Van Gerven (2005, pp. 227–58).

under-explored relative to their importance in shaping the process and content

of such public policy making.55 In many national systems, specific account-
ability regimes have evolved over decades/centuries to accommodate the vari-
ous modes of political choice and action. But how do these regimes adapt
when at least part of the political action has moved to the international level?
I understand from reading some of the debates on private law, particularly
on the making of European private law, that one concern is the lack of demo-
cratic input and democratic control, in particular by representatives from
national parliaments.56 It is, however, relevant in this context not only that
general rule-making processes may fall outside domestic processes of politi-
cal accountability, but also that there are no countervailing forces, no or few
checks and balances at the regional and global levels of governance.
In line with existing work with political science colleagues, this contribu-
tion will highlight a dual conceptual foundation for more detailed empirical
research into the meaning and practice of accountability across a range of
policy areas – and one that is much less mono-focused on the possible role of
representative democracy at the national level. My approach highlights two
different approaches to the conceptualization of accountability that can be
discerned in the literature. The first conception of accountability is as a norma-
tive concept as a set of standards for the evaluation of the behaviour of (public)
actors. The second use of accountability is more narrow and descriptive and
implies a focus on the institutional arrangements in which an actor can be held
accountable to a forum. Both conceptions of accountability have been further
defined in a way to make them operational and to make empirical study possi-
ble as to the existence or otherwise of various mechanisms of accountability.
4.2 Accountability as a Virtue
Accountability is often used as a normative concept, as a set of standards for

the behaviour of public actors, or as a desirable state of affairs. Often, in this
type of discourse, the adjective ‘accountable’ is used, as in: ‘We want public
officials to be accountable’, or ‘accountable governance’. In these usages of
the concept, accountability or, more precisely, ‘being accountable’ is seen as a
virtue, as a positive feature of organizations or officials. Accountability in this
very broad sense is used to positively qualify a state of affairs or the perfor-
mance of an actor. It comes close to ‘responsiveness’ and ‘a sense of respon-
sibility’, a willingness to act in a transparent, fair, and equitable way. It is not
55 See for example Van Schendelen (1998); Richardson (2000); Christiansen and
Kirchner (2000); Rhinard (2002, pp. 185–210); Kassim (2003, pp. 132–60); Page
(2003, pp. 162–76); Gerardin et al. (2005) and Egeberg (2007).
56 See for example Hesselink (2004) and Smits (2008).
easy to operationalize accountability as a virtue empirically ‘because it

depends on the type of organization and on its institutional context; because
many of the defining elements, such as transparency, responsibility, and
responsiveness, are each ideographs and umbrella concepts themselves, which
need extensive operationalization; and because the various elements often
cannot be measured along the same scale.’57
One of the more successful attempts to operationalize accountability as a
virtue is the Global Accountability Framework. It was developed by One
World Trust, a charity that conducts research on practical ways to make global
organizations more responsive to the people they affect. It uses a broad, active
notion of accountability and applies it to large transnational organizations. It
typically formulates a number of standards for the behaviour of transnational
actors. They should connect with stakeholders, be responsive to their needs
and views and provide explanations; they should be open, engage in dialogue,
and be willing to learn from it. These are norms of good corporate governance
in the global arena.58
The advantage of this approach is that this understanding of accountability
can be operationalized with regard to certain actors or organizations. These
have not been applied very extensively yet in practice, but there is no reason
why the four core dimensions that make an organization more accountable to
its stakeholders – transparency, participation, evaluation, and complaint and
response mechanisms – cannot be applied in a wide variety of contexts. To be
accountable, an organization or actor must integrate these four dimensions into
its policies, procedures and practice, at all levels and stages of decision
making and implementation, in relation to both internal and external stake-
holders.
These four dimensions or ‘standards’ do not require a sophisticated institu-
tional and formal structure. Rather, they can be applied across the board to
informal processes, including in the arena of more private governance by
largely private actors, as well as to public governance and public organiza-
tions. Yet there are problems. Transparency for example lacks a sanction and
is not as such to be equated with accountability. Participation by stakeholders
may provide some input legitimacy but questions will need to be asked about
their representativity. In addition, evaluation and complaint mechanisms are
not the same as oversight by the politically representative bodies such as
parliaments and the two different decisional circuits may be effectively
‘uncoupled’.
57 See further Bovens (2010).

58 See further Blagescu et al. (2006) and Lloyd et al. (2007).
4.3 Accountability as a Social Relationship
A different approach to conceptualizing accountability is to view it in rela-

tional terms as:
a social relationship between an actor and a forum, in which the actor explains his
conduct and gives information to the forum, in which the forum can reach a judg-
ment or render an assessment of that conduct, and on which it may be possible for
some form of sanction (formal or informal) to be imposed on the actor.59
This definition is analytically precise, consists of several distinct and discrete

stages that can be rendered operational, and has the great merit of being able
to link actors, any actors at any level, whether institutionalized formally or not,
with accountability forums. The latter did not have to be in a principal–agent
relationship with the actors and were inclusive and open in terms of mecha-
nism or type of accountability forums. They could be legal, political, financial,
administrative, and so on, irrespective of the grand constitutional design.
Moreover emergent practices might be linked to systems of democratic
accountability but were not limited in any way to these. Nor was there any
claim being made that accountability as thus defined would solve the legiti-
macy problems or would give rise to an appropriate and uncontested notion of
supranational or transnational democracy at the level of the EU or anywhere
else. On the contrary, the relationship between the rather precise notion of
accountability as thus defined and much broader themes and even meta-norms
of any political system were temporarily left to one side in the interest of being
able to focus on establishing more neutrally to what extent one could speak of
existing and evolving ‘practices’ of accountability at various different levels
and with regard to various different types of actors and institutions.
By applying the Bovens definition in its various stages to various different
kinds of actors we could attempt to open the ‘black box’ of the accountability
process. That accountability process can be situated at different governance
levels: at the supranational level, at the transnational level or at the national
level. One example of empirical work that is still ongoing focuses on the
manner in which national ‘agents’ sitting in comitology committees of the EU
are in practice embedded in hierarchical chains of accountability in the
national context. It appears that committee members may often be fully
autonomous in organizing their own work. In such cases bureaucratic princi-
pals are usually informed of their agents’ behaviour but tend not to engage in
59 Bovens (2006), http://www.connex-network.org/eurogov/pfd/egp-connex-C-

06-01.pdf, and Bovens (2007, pp. 104–20).
debating their agents’ points of view that lie at the heart of their input in
Brussels.60
Another ongoing study involves taking a step back from ex post account-
ability practices to focus on the degree of autonomy from EU political institu-
tions that EU-level non-majoritarian agencies enjoy as a matter of fact as
opposed to law. It emerges from a rather extensive series of interviews with
high-level practitioners that such agencies are often controlled on an ongoing
basis by their EU political principal, either the Commission or the Council of
Ministers. Before evaluating agency accountability and identifying deficits, it
has to be ascertained a priori whether agencies and perhaps other actors really
benefit from all the discretion and independence they are formally said to
possess.61
There is a need for more empirical work taking specific actors and
networks at the European and global levels as the focus of study and explor-
ing the nature of accountability practices with regard to various accountability
forums (for instance, the evolving roles in practice of the European
Parliament, European Court of Justice, Court of Auditors, European
Ombudsman and so on). For example, actors such as the European-level
network of financial regulators, with European tasks, known by the acronym
CESR, may be studied. There is also a need for more conceptual (and empiri-
cal) work on the linkages between a concept of accountability as relatively
precisely defined and other general ‘themes’ of any political system. This can
include both meta-norms such as ‘democracy’, ‘representation’ and ‘legiti-
macy’ and more secondary norms of the type ‘organizing principles’ such as
‘transparency’, ‘administration’ and ‘civil society’. At the same time there is a
need to take the empirical work one step further by building on the insights
from the empirical research. What do we learn from the empirical work? How
can we contribute to/refine the existing theory? These are issues that need
much further thought and reflection and can be addressed not only in the
context of European private lawmaking but also more generally in that of
transnational governance.
5 CONCLUDING REMARKS
One possible analysis of shifts in governance to the transnational and
European arenas is certainly in terms of a democratic challenge at different
levels. If we take EU lawmaking as our example, the challenge is to democra-
60 See in particular Brandsma (2010, forthcoming).

61 See Busuioc (2010, forthcoming).
tize first at the level of the EU political system itself; secondly, at the level of
the national political system; and thirdly, at the level of the often intricate
interactions between the two. This description already indicates that there is
unlikely to be a single solution for Europe’s democratic challenge at any level,
since national democracies are not only different but have been affected in
critically different ways by ongoing processes of European integration.
Accountability can in fact be construed as an important organizing principle of
democracy resting upon specific standardized procedures.62 Democratic
accountability is addressed as an element in accountability as a virtue, in terms
of stakeholder involvement, and as a mechanism, in the form of political
accountability. No wider claim is made that these practices of accountability,
in both senses, will solve legitimacy problems or give rise to appropriate
transnational democracy.
There is in addition to what has been discussed in this chapter a further
potential of international law norms to make a (limited) contribution to hold-
ing international actors to account.63 At the transnational level the emerging
(administrative) principles in the Global Administrative Law literature64 may
be a helpful perspective on an emerging culture of administrative law within
global regulatory governance, despite some of the caveats that have been
expressed in the literature.65 Some principles (such as transparency, participa-
tion) have been identified as part of a growing body of global administrative
law based on patterns of commonality in its function as a mechanism of
constraint and control.
If the EU did not exist then many of the issues currently dealt with by the
EU would not simply revert to the national (democratic) level, but would be
dealt with through other instruments of international cooperation (bilateral or
multilateral treaties, policy networks, and so on) with an aggravation of the
same phenomenon: overweening executive power and little if any counter-
vailing power.66 At the level of the EU political system we find the same
phenomena that we find at the more global level: policy based networks,
involvement by private actors and the scientific community, soft instruments
of governance and a lack of clarity as to lines of responsibility and account-
ability. Moreover it is precisely in this context that several innovative arrange-
ments are emerging/taking shape that could function as inspiration in other
contexts.
62 See further Curtin and Wille (2008).

63 Wilde (2005).
64 See MacDonald (2008).
65 See further Kingsbury et al. (2005); Marks (2004); and Cassese et al. (2008).
66 See too Craig (1999). See more recently on the transnational level De Búrca
(2008, pp. 221–78).
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PART II
Harmonization versus decentralization

3. Private law in a globalizing world:
economic criteria for choosing the
optimal regulatory level in a multi-
level government system
Roger Van den Bergh
1 INTRODUCTION
In multi-level systems of territorial jurisdictions, regulations may be enacted
at either a higher (centralized) or a lower (decentralized) level of government.
A prime example is the European Union (EU): a particular competence may
be allocated to one of four different levels: the European Union, the Member
States, the regions within the Member States and provinces or municipalities.
The World Trade Organization (WTO) adds an additional layer of governance
to this already complex vertical division of regulatory powers by creating
scope for decision making at the world-wide level.
This state of things poses difficult questions as to the optimal level of
government. Should competences to enact regulations be exercised at the
central level (European Union, World Trade Organization) or should such
competences be decentralized and exercised by nation states or by regulatory
agencies at lower levels of government within those states? Even though law
was originally the exclusive domain of nation states, the ambitious internal
market programme of the European Community (EC) has led to a substantial
reshuffling of regulatory competences. Since the achievement of the internal
market is often considered an exclusive competence of the EC, Member States
have lost large parts of their regulatory autonomy in areas of law affecting the
four fundamental economic freedoms. Even though the World Trade
Organization does not enjoy similar regulatory powers – since there is no
direct equivalent to the four economic freedoms and institutions enforcing
those freedoms comparable to the European Court of Justice (ECJ) are lack-
ing – the regulatory autonomy of states may be restricted by way of multilat-
eral agreements to ensure free trade, protect health and safety and the
environment, avoid competitive distortions through taxes and subsidies,
protect intellectual property, and so on.
57
As a consequence of the foregoing, nation states may lose their regulatory

autonomy also in the field of private law in as far as the national rules (either
in legislation or in case law) are not in conformity with rules decided at the
central level to guarantee free trade. For example, in the EC initiatives to
harmonize large parts of private law have been taken under the consumer
protection flag. Recently, total harmonization is aimed at by the EC Directive
on unfair business-to-consumer practices1 and the proposed EC Directive on
consumer contractual rights.2 This far-reaching centralization of regulatory
powers is defended by the claims that differences in legal rules hinder firms
from extending their operations beyond national borders and that consumers
may refrain from cross-border shopping if they do not enjoy the same legal
protection abroad. In sum, unification and harmonization would be needed to
enhance free trade and create an integrated market. Within the framework of
the WTO, there is no comparable delegation of regulatory powers but states
may enter into multilateral agreements that limit their freedom to enact legal
rules that limit free trade. Compared with the duties imposed on EU Member
States, the impact of the obligations of WTO countries on the content of their
national rules of private law so far seems to be minor.
In an era of ever expanding centralized rule making, which increasingly
limits the scope for regulatory action by nation states, it is necessary to ask
fundamental questions about the role central institutions are playing and about
their capacity to exercise the powers they enjoy in a way that enhances
economic welfare. Economic analysis of law advances a number of criteria to
assess whether the vertical division of regulatory competences between the
central and local levels of government is optimal in an economic sense. This
chapter provides an overview of these economic criteria and thus seeks to
contribute to the discussion about regulatory autonomy in multi-level jurisdic-
tions. Some economic criteria point in favour of decision making at lower
levels of government: heterogeneity of preferences, decentralized knowledge
and innovation. Other economic criteria indicate a preference for decision
making at the central level: interstate externalities, scale economies, transac-
tion cost savings and the elimination of trade barriers.3 On top of these crite-
ria, it is important to analyse the likely outcome of the different types of
regulatory competition that may emerge in decentralized regulatory systems.
1 Directive 2005/29/EC, OJ L149, 11/06/2005, p. 22.

2 Proposal for a Directive on consumer contractual rights, 04/09/2008,
SEC(2008).
3 It must be added that there are also non-economic criteria that may favour
centralization. If governments want to achieve distributional goals centralization will
often be warranted. The discussion in this chapter is limited to the economic goals of
policy-making.
Choosing the optimal regulatory level 59
Will regulatory competition initiate a ‘race to the bottom’ or will it lead to a

‘race to the top’? By discussing the above criteria and analysing the likely
outcomes of regulatory competition, better informed policy choices between
decentralization and centralization may become possible.
The structure of this chapter is as follows. The economic criteria allowing
an informed choice of the most appropriate regulatory level will be discussed
successively. The second section introduces heterogeneity of preferences as a
major justification for decentralized decision making. This insight is an impor-
tant extension of Tiebout’s theory on optimal provision of public goods. The
third section discusses a second group of arguments which strengthen the case
in favour of decentralization: better information at lower levels of government
and a higher degree of flexibility and innovativeness. The fourth section
addresses interstate externalities, which may provide a major justification for
centralization and harmonization of laws. The fifth section focuses on the free
trade argument, which in the policy debate is the major justification for
centralization. A link is made between the market integration reasoning and
the economics of federalism. According to the latter approach, scale
economies and transaction cost savings may justify centralization; in as far as
such cost savings enhance free trade the market integration argument may be
accepted as another criterion in favour of centralization. The sixth section
discusses the potential benefits and costs of regulatory competition. Here, the
popular argument that such competition may reduce the quality of law and
cause a ‘race to the bottom’ is discussed. To the above arguments it must be
added that uniform rules may benefit interest groups, rather than the general
public. The risk of political distortions is briefly discussed in the seventh
section of the chapter. In the eighth section of the chapter, the main lessons
from economic analysis for globalization of private law are presented. The
ninth section concludes.
2 HETEROGENEITY OF PREFERENCES
A useful starting point for an economic analysis of decentralization is
Tiebout’s seminal article on the optimal provision of local public goods.4
Congestible public goods, which are consumed and financed in common, do
not allow people with a variety of tastes to live side by side without difficulty.
People can be better off if they cluster together in communities with others
who have similar tastes. For example, people who like to play sports may
move to communities offering publicly financed sports facilities, such as
4 Tiebout (1956, p. 416).

swimming pools and tennis courts. Other people who prefer to read books may
move to communities with well-equipped libraries. If people can freely move,
they can ‘vote with their feet’ and move to the community offering their
preferred bundle of public goods.
Legal rules also have characteristics of public goods: they are both non-
rivalrous and non-excludable. The possibility to claim damages for a particu-
lar victim of a tortfeasor does not hinder other victims from equally obtaining
compensation (absence of rivalry); people who do not pay taxes also profit
from rules on traffic safety (no possibility to exclude free-riders). Hence,
Tiebout’s theory may be extended to competition between legal rules.
Competing jurisdictions will offer an optimal package of public goods if
people can vote with their feet. Theory tells us that if competition between
sellers of products may lead to allocative efficiency, the same beneficial
results may be reached when legislators compete as suppliers of legal rules.
Decentralization enables legislators to choose those rules which best serve the
goals preferred by the local population. Firms and individuals may vote with
their feet and choose the jurisdiction which in their view offers the best set of
laws. Such ‘exit’ decisions, together with the power to vote (‘voice’), may
ensure that firms and citizens are offered their preferred set of legal rules. It
must be emphasized that voting with their feet does not require that people
move physically. A free choice of law rule, which enables firms and individu-
als to choose which law will apply to their transactions, will create the largest
possible scope for regulatory competition. The best-known example is the
freedom for companies to choose the corporate law governing their business,5
but free choice of law may equally apply to business contracts and consumer
sales.
As is the case with all economic models, Tiebout’s theory is valid only if a
number of restrictive assumptions are satisfied:
• There must be a sufficiently large number of legislators. In the European

context, 27 legislators may offer a wide range of legal options and
European rules may be added as a 28th choice. At the world-wide level,
the number of potentially competing legislators and, accordingly, the
potential to satisfy diverging preferences is much larger.
• There must be no information deficiencies. People must be able to
understand the different legal rules, so that they can make well-
informed choices. This is a strong assumption with respect to individu-
als who may face great difficulties in assessing the contents of divergent
rules. In contrast, the requirement of perfect information may be more
5 See Heine and Kerber (2002, p. 43).

realistic for firms, which can hire experienced lawyers to assist them in
shopping for the best legal regime.
• There must be no interstate externalities, no scale economies or oppor-
tunistic behaviour of legislators. These requirements will be discussed
in more detail below (Sections 4 to 6), and it will then become clear that
these are the main arguments in favour of centralized decision making
and some form of harmonization of laws.
Even though the conditions of the model are not easily satisfied in practice,
Tiebout’s theory remains important since it illuminates the economic reasons
which may justify decentralization. At the normative level, the Tiebout model
leads to the important insight that diverging legal rules or competition between
legal orders enables satisfaction of more preferences. This benefit is particu-
larly important in fields of law where preferences are not homogeneous.
Environmental law is an obvious example. In a first-best world environmental
standards are decentralized: they are adapted to varying preferences and take
regional diversity into account. Some jurisdictions may wish to relax their
environmental standards in order to provide attractive jobs for their residents.
Costs and benefits do also differ across geographic regions and this regional
diversity should be taken into account in an optimally specified environmen-
tal law.6
Building upon Tiebout’s classic article, a case can be made also for diver-
gent company laws and varying rules of competition law. Corporate law is
largely shaped by the wish to protect investors from managerial shirking.
However, the desire to protect not only shareholders but also other stakehold-
ers (in particular employees) may inspire diverging management structures, as
a comparison of UK and German corporate law may show.7 In the discussion
about the goals of competition law, allocative efficiency is not generally
accepted as the sole objective.8 In contrast with the United States of America,
pluralist views predominate in the European Union. Rather than emphasizing
efficiency goals, the competition law of the EC Member States may reflect
different concerns, such as the protection of freedom of competition as such.
There is no economic reason why competition laws should not reflect differ-
ent views in different countries as long as both costs and benefits remain in the
jurisdiction that enacted the rules. The recent transplantation of many EC
competition rules into the national legal orders of some Member States
restricts the choice between competition laws.
6 For a more elaborate discussion, see Faure (2001, p. 263).

7 For a broad comparative overview of diverging corporate laws from an
economic perspective, see Kraakman et al. (2004).
8 Van den Bergh (2007a, p. 27).
3 DECENTRALIZED INFORMATION AND INNOVATION

Decentralization becomes the more important the more necessary information
for rule making is available only at lower levels of government. Hence, a pref-
erence for decentralization follows from the need to cope with informational
asymmetries between regulators and regulated firms. Decentralization is the
more efficient the more valuable local information is for appropriate rule
making and enforcement. The asymmetry of information between regulatory
authorities and regulated firms may be analysed as a principal–agent problem.
Regulatory authorities (both national and supranational or international) have
an information disadvantage vis-à-vis the firms they have to control; the
former may be seen as the principals and the latter as the agents. Out of self-
interest the agents may be unwilling to reveal all the information needed by
the principals. A related danger is the communication of false information. It
may be argued that it is more difficult for firms to hide or misrepresent infor-
mation to decentralized agencies than to a more remote agency.
Decentralization may thus be advocated because it reduces the agency prob-
lem.9
Again, examples are appropriate to illustrate the importance of the infor-
mation argument with respect to both substantive law and rules regarding
enforcement. Environmental law nicely illustrates the need of decentralization
to cope with information asymmetries. Not only do preferences concerning the
desired degree of environmental protection differ across regions, but also
knowledge of pollution problems (age of plants, atmospheric conditions) may
be decentralized.
In the field of enforcement, competition law may be used as an example. If
the anticompetitive effects of agreements or a merger manifest themselves
mainly within the territory of a single EC Member State, the antitrust author-
ities of this country will have an information advantage over the central
antitrust authority to control these transactions. National competition authori-
ties are generally better placed to assess matters that are concentrated in their
particular state. On the other hand, the risk of regulatory capture at lower
levels of government may be higher. National authorities may be inclined to
favour national interests. Officials of a central competition authority are more
remote from the firms they have to control and may thus act in a more inde-
pendent way, making them less vulnerable to regulatory capture. As a conse-
9 There are, naturally, also intermediate solutions between full decentralization

and full centralization. Decentralized information gathering can help to remove much
of the information asymmetry faced by central regulatory agencies. An obvious alter-
native to the choice between centralization and decentralization is the co-existence of
national and supranational procedures.
quence, an optimal mix of centralized and decentralized enforcement

measures will be required to reach efficient outcomes.10
Besides its ability to cure informational asymmetries, decentralization
carries an important and related advantage. Competition between legal orders
generates all benefits of a learning process.11 Differences in rules allow differ-
ent experiences and may improve an understanding of the effects of alterna-
tive legal solutions to similar problems. From this perspective, the European
Union can be seen as a huge laboratory that allows experiments to find out
which legal rules are optimal, given specific societal goals. Again, this advan-
tage relates both to the formulation of the substantive rules and their enforce-
ment. The importance of this second argument in favour of competition
between legal orders also varies across different fields of law. Sometimes
learning will be very important: examples include safety and health stan-
dards12 or defining market power in the field of competition law.13 In other
areas of law there may be less uncertainty and the importance of trial-and-error
processes will consequently diminish.
4 INTERSTATE EXTERNALITIES
Externalities between jurisdictions are a powerful argument in favour of
centralized rule making. If nation states enact legal rules that are likely to
cause negative externalities for other states, centralization may be needed to
guarantee that the externalities are ‘internalized’. The externality problem
arises in many fields: air pollution is an obvious example. Another example is
the negative effects of a merger on prices in different countries; to internalize
these negative consequences control by a central antitrust agency may be
required. If allocative efficiency is to be reached in a federal state, preferences
for inefficient national rules in any field of law may be satisfied only to the
extent that costs are borne by the population preferring such rules. Conversely,
centralization may be required to internalize the negative effects thrown upon
other jurisdictions.
In diverging policy fields, national laws may cause adverse externalities for
other states. However, before jumping to the conclusion that centralization is
warranted, it should be investigated whether bilateral (or multilateral) agree-
ments between the states concerned are not superior solutions. In the Law and
10 Van den Bergh and Camesasca (2006, p. 402).

11 This important insight goes back to the seminal work of Nobel Prize Laureate
Friedrich von Hayek. See von Hayek (1978, p. 66).
12 See Ogus (1994, p. 152).
13 On these problems, see Camesasca and Van den Bergh (2002, p. 146).
Economics literature this alternative is known as Coasian bargaining.14 The

Coase theorem tells us that if there are well-specified property rights, full
information and low transaction costs, the efficient solution will result through
bargaining between the states without any need for further intervention.
An important limitation to Coasian solutions is that states may behave
opportunistically, so that either no agreement is reached or states do not
comply with their obligations. Guzman mentions three factors that have an
impact on the costs of such violations and thus promote compliance. The first
factor is the loss of reputation: a state that does not comply with its obligations
may find it more difficult to make credible international commitments in the
future. The second factor is reciprocal non-compliance: other states may
equally terminate their own compliance. The third factor is retaliation: other
states may punish the non-complying state even if it is costly to do so.15
Cooperative outcomes may be enhanced by increasing the costs of the three
Rs: reputation loss, reciprocal non-compliance and retaliation. For example, in
the case of the WTO an offended state can suspend its own concessions in
response to an ongoing violation by another state. Generally, the threat of reci-
procal non-compliance will be more credible the smaller the number of states
that are bound by multilateral agreements.16
In the European Community, the attribution of legislative powers to
European institutions (European Commission, Council of the European
Union, European Parliament) allows the enactment of regulatory measures,
including unification and harmonization at the central level, which cope with
the externalities problem. However, central rule making may be unnecessary
if cooperative outcomes can be reached through negotiations between states.
Depending on the availability of information at different regulatory levels
and the size of the negotiation and enforcement costs, an important task for
the European Community may be to provide an institutional framework in
which Coasian bargaining is possible. An example of relatively successful
multilateral agreements between EC Member States and a third country,
which aimed at solving the problem of interstate externalities, is the reduc-
tion of the pollution of the Rhine.17 However, if the number of EC Member
States affected by the externalities is too large or reaching agreements is
14 Named after Nobel Prize Winner Prof. R.H. Coase, who is generally consid-
ered a founding father of New Law and Economics, in which economic insights are
used outside the field of antitrust, such as private law. The Coase theorem was devel-
oped in Coase (1960, p. 1).
15 Guzman (2008).
16 Guzman, op.cit., p. 175.
17 See Van den Bergh (2000, p. 80).
impeded by opportunistic behaviour,18 unification or harmonization of laws

may be needed.
If Coasian solutions are not possible, legislative measures taken at the
central level may be an adequate solution for internalizing negative interstate
externalities. The potential for curing the externalities problem remains
limited in the context of traditional multilateral negotiations, such as those of
the WTO, which are based on the principle of consensus.19 Conversely,
European institutions enjoy far-reaching powers to impose rules on Member
States without their prior consent and may effectively sanction violations. In
this way, the problem of interstate externalities can be overcome when loss of
reputation, reciprocal non-compliance and retaliation are insufficient to stim-
ulate co-operative outcomes. Even when the externalities argument may
justify centralization, it should be limited to its right proportions. The
economic theory of federalism teaches that rules should be enacted at the
lowest level of government capable of internalizing the relevant externali-
ties.20 For example, in the case of transboundary pollution the rules should
apply to all affected states and only to those states. Hence, the case for glob-
alization remains limited. In cases of pollution of rivers, for instance, the
central rules should apply only in states where the rivers are flowing.
Universal rules that apply world-wide are needed only when all states in the
world are affected by the externalities, for example in the case of global warm-
ing.21
5 SCALE ECONOMIES, TRANSACTION COST SAVINGS

AND THE ELIMINATION OF TRADE BARRIERS
From an efficiency viewpoint, centralization may also be defended because of
scale economies or transaction cost savings. Scale economies are achieved
when production costs decrease as size of production increases. An extreme
case is a natural monopoly where a single producer can supply the market at a
lower per unit cost than can two or more firms.22 Transaction costs are costs
associated with finding trading partners, reaching agreements and putting
18 Member States may not agree to a cooperative outcome, in order to signal that
they are ‘tough negotiators’, and thus want to protect their bargaining power in future
negotiations.
19 On the decision-making processes in the WTO, see Wouters and De Meester
(2007, p. 127).
20 Oates (1972) and Inman and Rubinfeld (1997, pp. 43–64).
21 Guzman, op.cit., p. 170.
22 Depoorter (2000, p. 498).
contractual obligations into force. They comprise information costs, costs of

writing contracts and costs of enforcement. If transaction costs are too high,
welfare enhancing transactions will not take place.
In discussions on international trade, it is often argued that trans-national
trade will increase if uniform rules are enacted by a single legislator or trade
barriers resulting from differences in legal rules are mitigated through harmo-
nization measures. In the European context, the goal of market integration is
often advanced as the major argument to justify rule making at the central
level. This line of reasoning gets support from the economics of federalism
only if a causal link between cost savings achieved by harmonization of legal
rules and increased cross-border trade can be shown. Hence, the burden of
proof for those who favour centralization remains heavy. First, they must show
that harmonization generates scale economies or transaction cost savings.
Second, it must be proven that these cost savings increase trade and contribute
to an integrated economic market and that the benefits of increased trade are
not outweighed by the disadvantages of centralization.
5.1 The Size of the Cost Savings
Scale economies may be important in the production of the information

needed to formulate and/or enforce legal rules. For example, some information
relevant to the entire European Union can be most efficiently provided by EU
institutions. However, the achievement of these cost savings does not in itself
justify centralization. If preferences are heterogeneous, efficiency may require
that rules are formulated at lower levels of government even though informa-
tion gathering is centralized. Moreover, it should be noted that the importance
of this argument will vary across different fields of law. Scale economies may
be important for the design of efficient rules of public law such as safety regu-
lation, but irrelevant in other fields of law, such as private law.
In international trade, transaction costs caused by uncertainty may impede
agreements that are mutually beneficial for both contracting parties. Legal
rules enacted by a central regulator reduce transaction costs in as far as future
contract parties will no longer incur costs to inform themselves about diverg-
ing rules that may apply to their transactions. These savings may be substan-
tial in the case of legal uniformity. Uniform rules will reduce information
costs, since knowledge of two (or more) legal systems is no longer required.
Harmonization measures may equally reduce transaction costs by reducing
existing differences between legal systems. Lawyers often refer to the need for
legal certainty as a crucial quality feature of law. In economic terms, this argu-
ment refers to transaction cost savings generated by legal uniformity and
harmonization of laws. If rules differ, information costs increase and the
outcome of cases is less predictable. Even though this argument seems plausi-
ble at first sight, a more detailed analysis will show that the transaction cost
savings resulting from legal certainty are less obvious than is regularly
assumed.
It is doubtful that uniform laws automatically reduce uncertainty. To start
with, within the European Union problems already emerge when the ‘uniform’
rules have to be translated into the different languages of the EU Member
States. Language differences resulting from translations can lead to different
interpretations of the same provision.
Even if interpretation problems can be avoided through adequate transla-
tions, legal certainty will not automatically be achieved. Common uniform
rules only increase legal certainty when a uniform interpretation of the law in
each EU Member State is secured. Unlike goods, legal rules cannot easily be
transported from one state to another. It does not suffice that the legal systems
of the EU Member States use the same wording. This wording must also be
understood as having the same content in the different legal systems. Legrand
emphasizes that there could only occur a meaningful legal transplant when
both the propositional statement as such and its invested meaning – which
jointly constitute the rule – are transposed from one state to another. ‘Legal
transplants’ sensu stricto may be simply impossible.23 The sharp criticisms by
Legrand make clear that the achievement of legal certainty requires not only
uniformity of legal rules but equally harmonization of case law. The European
Court of Justice may be asked to provide a uniform interpretation of legal
concepts that are included in Regulations and Directives. At the international
level, there is not another court that has the power to guarantee uniform inter-
pretation of legal concepts. Given the differences in interpretation that cannot
be overcome, legal certainty at the global level will thus remain a myth.24
It must be added that the implementation of harmonization measures
creates costs of its own, which may (partially) outweigh the savings in terms
of legal certainty. The costs of modifying national rules may be very high if
the new rules apply also to purely domestic transactions. In the latter case,
harmonization causes disharmonies within national legal systems by creating
islands of unitary laws that disrupt the internal consistency of national legal
systems.
23 Legrand (1997, p. 111). Some commentators believe that codification

produces certainty, while others think that systems of precedent bring greater
predictability. See on this issue Collins (2002, p. 269). Legal systems trying to under-
stand the expectations and understandings of parties and implement them will score
better in terms of predictability than legal systems which poorly reflect citizens’ expec-
tations.
24 Rühl (2008).
In sum, the overall impact of harmonization on legal certainty is ambigu-

ous and there is no compelling transaction cost argument in favour of harmo-
nization of laws.
5.2 Does Harmonization Advance Market Integration?
In the international trade literature, the market integration argument (removal

of trade barriers) is widely used to justify, eventually far-reaching, centraliza-
tion and harmonization of laws. This line of reasoning gets support from the
economics of federalism only if two conditions can be shown and an addi-
tional caveat is taken seriously. First, uniformity or harmonization of laws
must enable the achievement of scale economies or transaction cost savings.
Second, these cost reductions must increase cross-border trade and further
market integration. Even if a causal link between harmonization measures and
increased cross-border trade can be shown, the ensuing benefits should not be
outweighed by potential costs of the centralization plan. In reality, there are
three major problems with the market integration argument.
First, there is a risk that the benefits of market integration are too easily
taken for granted. Diversity in legal rules may constitute a trade barrier that
prohibits firms from using the same production and marketing techniques in
larger areas. However, an open question remains as to the impact of increased
legal certainty on the volume of international trade. There is evidence that
state borders have a dampening effect on the volume of commercial transac-
tions but the causes of this phenomenon and the ensuing transaction cost
dilemma (implying that transactions do not take place even if they are welfare
increasing) remain largely unknown. So far, there is no hard empirical proof
that corroborates the hypothesis that diversity in rules limits cross-border
trade. The European Commission is usually relying only on data from surveys
conducted among firms and consumers. The answers given to hypothetical
questions such as ‘Would you sell/buy more abroad if legal rules were
uniform?’ may not reveal how people act in real-life circumstances. Another
reason to be cautious is that surveys that were not commissioned by the
European Commission do not confirm the hypothesis that firms are deterred
from engaging in cross-border transactions by diverging legal rules. 25
Convincing empirical evidence requires a comparison of existing trade flows
between countries where laws are widely uniform and countries where legal
rules diverge substantially. By way of a regression analysis, the impact of
diverging rules must be isolated from other factors, such as travel costs,
language differences and cultural barriers. An econometric analysis of real-life
25 Ott and Schäfer (2002, p. 203).

data, rather than figures about reactions to hypothetical questions, is needed to

prove the European Commission’s market integration reasoning. As long as
convincing empirical evidence is lacking, the barriers to trade argument
cannot on its own justify centralized rule making.
Second, firms may find different ways to overcome legal barriers in inter-
national trade. Public ordering mechanisms, such as harmonization measures,
may be inferior solutions compared with private ordering mechanisms that
better solve the problem of legal uncertainty.26 Private firms may establish
their own rules for international transactions; in the context of commercial law
these standardized contracts are known as lex mercatoria. Besides developing
an autonomous law of international trade, firms may develop and maintain
cooperative strategies that overcome problems resulting from diverging legal
rules in countries where their transactions take place. Game theory teaches that
parties will act cooperatively (and thus honour their promises) if they are
repeat players (who meet each other an indefinite number of times) and are
able to assess whether their contract party behaves cooperatively or not. The
Law and Economics literature has tested this hypothesis and provides convinc-
ing examples of international trade relying on reputation mechanisms from the
middle ages until today.27 In sum the cost–benefit ratio of decentralized
private ordering mechanisms may be superior to uniformity and harmoniza-
tion brought about by a central public rule-maker.
Third, the market integration argument (as it is presented in the policy
documents of the European Commission) is based solely on foreign trade
concerns and neglects the broader insights from the economic theories of
federalism and regulatory competition.28 Even if cross-border trade increases,
the losses due to centralization and harmonization may outweigh the benefits.
Gains resulting from increased trade must be balanced against losses resulting
from reduced possibilities to satisfy diverging preferences regarding the
contents of legal rules and losses from missed learning opportunities and other
benefits of decentralization. As will be explained below, regulatory competi-
tion is not necessarily a bad thing and may lead to a ‘race to the top’ rather than
a ‘race to the bottom’.
6 REGULATORY COMPETITION
The choice between centralization and decentralization has an impact on the
degree of legal uniformity and the scope for competition between legal rules.
26 Schmidtchen and Schmidt-Trenz (1990, p. 3).

27 Milgrom and Weingast (1994, p. 745) and Bernstein (1992, p. 115).
28 Kerber (2007, p. 15).
Centralization may imply uniformity and little scope for diverging legal rules.
By contrast, decentralization may enable competition between legislators and
different solutions for legal problems. Diverging rules are often criticized
because they would cause distortions of competition in cross-border trade.
When the European Commission proposes harmonization of laws, it usually
refers to the need to prevent inequality of competitive conditions across the
EC Member States. It is regularly argued that differences in regulation cause
distortions of competition, and that harmonization measures are needed to
create a ‘level playing field’ for industries that are active in cross-border trade.
If legal rules differ, so it is argued, firms operating in Member States that have
chosen in favour of regulatory laxness would have a competitive advantage
over firms in other Member States that have adopted stricter rules.
Competitive distortions of this kind would be incompatible with the goal of
market integration. Also at the global level, uniformity may be seen as an
instrument to equalize competitive conditions in world markets so that firms
from different countries may compete on an equal footing. In sum, the need to
create a ‘level playing field’ is often advanced as an argument against regula-
tory competition.
There are several problems with the above line of argumentation. First, the
level playing field argument is based on a reasoning that goes against the very
essence of international trade itself. Second, the argument may be easily
abused by policy makers who favour far-reaching centralization. In the
European context, this may cause a ‘race to Brussels’. Such strong centralist
tendencies endanger both the existence of a multi-level regulatory system and
its beneficial competitive elements. These criticisms do not imply that regula-
tory competition is always to be judged positively. An assessment of regula-
tory competition requires two steps: (i) an analysis of the particular type of
regulatory competition that may develop given the degree of (de)centralization
and the applicable conflict-of-law rules within a multi-level regulatory system,
and (ii) an analysis of the welfare effects of this competition. The last part of
this assessment may show a risk of a ‘race to the bottom’. Only if this risk
materialized would regulatory competition lead to ‘bad’ law, and centraliza-
tion, in particular measures of (minimum) harmonization, would be needed to
protect the quality of the law. Below, these arguments are further elaborated
upon. First, the ‘level playing field’ argument is criticized. Second, a distinc-
tion is introduced between different types of regulatory competition. Third, the
risk of a ‘race to the bottom’ is critically assessed.
6.1 The Level Playing Field Argument
A very popular argument in discussions on international trade, both at the EC

level and at the global level (WTO), is that differences between legal rules on
market behaviour create distortions of competition and may harm industries

that are active in the more heavily regulated countries. Removing those differ-
ences would create a ‘level playing field’ for industry and promote market
integration and global trade. When it is critically assessed as an argument justi-
fying harmonization measures, the level playing field argument does not with-
stand close scrutiny.
International trade is based on comparative advantages, so that it is not
necessarily illegitimate to exploit differences in legal rules. Such differences
may have an impact on the competitive advantages of states.29 Refusing to
exploit differences in government policies seems to be in contradiction with
the essence of international trade itself. If conditions of competition were
indeed totally equal, as the argument assumes, there would be no trade. The
argument in favour of a level playing field thus appears to be distributional
rather than efficiency oriented.30 If legal rules confer a competitive advantage
on firms in a particular state, the consequence will be that prices for consumer
goods in the international market will be reduced, with welfare gains flowing
to consumers who previously had to pay higher prices. Some losses will be
incurred by industries previously complying with inefficient laws, but gains
will flow to other industries offering cheaper products. The aggregate welfare
consequences for the global market are likely to be beneficial. In sum, an
‘uneven’ level playing field may create scope for regulatory competition that
results in substantial welfare gains at the global level.
It must be added that harmonization of a particular field of law is not neces-
sarily an appropriate remedy to create a ‘level playing field’ for industry. The
problem with a partial centralization plan is that it does not equalize all costs.
The costs of complying with a particular set of regulations are only one
component of the total costs of production. Harmonizing one type of regula-
tion (such as environmental law) will leave ‘competitive distortions’ intact in
other fields of regulation (such as consumer law). Furthermore, the goal of
creating a ‘level playing field’ will not be reached, since industries in some
countries will keep an advantage in terms of infrastructure, wages, labour
productivity, and so on. Countries that perform well on the non-harmonized
components of costs will thus keep competitive benefits. The ultimate answer
is to eliminate the possibility of competition over any of the costs mentioned,
including both costs of complying with regulations and other production costs.
Such a comprehensive intervention at the world-wide level is simply impossi-
ble.
29 Porter (1990).
30 Ogus (1999, p. 417).
6.2 Different Types of Regulatory Competition
The discussion on the harmful or beneficial effects of regulatory competition

is often obscured by a lack of precise analysis of the type of regulatory compe-
tition that may develop in a multi-level regulatory system. Before the effects
of regulatory competition on economic welfare can be assessed, answers are
needed to the preliminary questions of whether there is scope for regulatory
competition in the first place and which forms such regulatory competition
may take. The answers to these questions are dependent on (i) the institutional
framework of the existing multi-level system of government and the degree of
unification or harmonization that has been achieved already (minimum harmo-
nization or total harmonization), and (ii) the applicable conflict-of-law rule in
such a multi-level legal system. This will be further explained below by distin-
guishing different potential scenarios: centralization combined with harmo-
nization, decentralization and free choice of law, decentralization protected by
the country of destination principle, and decentralization combined with the
country of origin principle or mutual recognition.
There are different types of regulatory competition that each depend on the
degree of (de)centralization in multi-level legal systems and the conflict-of-
law rule that applies in case of shared regulatory competences.31 The more
regulatory competences are centralized, the smaller is the scope for diverging
rules at lower levels of government. An extreme scenario is total harmoniza-
tion: all legislative and regulatory decisions are taken at the central level;
hence there is complete uniformity and no scope for regulatory competition.
Another scenario is centralization combined with minimum harmonization. In
this setting, competition between legal rules remains possible but only above
a floor of rights that is guaranteed by the minimum standards that have been
imposed at the central level.
The opposite of centralization combined with harmonization is decentral-
ization combined with divergent legal rules. If different rules may apply to a
single transaction, conflict-of-law rules are needed to determine which legal
rules govern business deals with transnational components. The most intensive
type of regulatory competition can emerge under a regime of free choice of
law. Under this scheme, sellers and buyers can choose between diverging
national regulations and select the rules that are best adapted to their prefer-
ences. A Tiebout-like scenario of ‘voting with their feet’ may develop without
the need for sellers and buyers to move their physical location. In spite of the
potential positive welfare effects of regulatory competition, decentralized
systems may opt for different conflict-of-law rules that reduce the scope for
31 Heine and Kerber (2002) op.cit.; Kerber and Budzinski (2003, p. 411).
competition between legal rules. Hereinafter, we contrast two conflict-of-law

rules that are commonly used in international trade: the country of destination
principle and the country of origin principle, which is also referred to as
mutual recognition.
The country of destination principle severely limits the scope for competi-
tion between regulations governing the production or the sale of goods. Sellers
and buyers cannot freely choose which rules will apply to cross-border trans-
actions. If they prefer that their transactions are governed by legal rules of a
foreign country, firms have to relocate to that state and consumers must
conclude their business deals there. Since even a relocation of firms does not
change the requirement of compliance with the domestic regulations of the
import countries, there will be no direct regulatory competition. The only form
of competition that may emerge is ‘yardstick competition’. Countries may
compare the costs and benefits of their own legal rules with the cost–benefit
ratio of comparable rules in other states. This process of yardstick competition
allows parallel experimentation with different regulations and mutual learning
about better regulations. By contrast, full harmonization would eliminate even
this reduced form of regulatory competition.32
The country of origin principle generates a very peculiar kind of regulatory
competition. According to this principle, foreign firms are allowed to offer
goods that are produced in conformity with the regulations of their country of
origin and sell them in accordance with those regulations. In the European
Community, the principle is also referred at as ‘mutual recognition’. The ratio-
nale underlying the rule of mutual recognition is that host Member States can
no longer enforce their own rules if rules of home Member States have equiv-
alent objectives or effects but are obliged to accept the equivalent foreign
rules. Since the famous Cassis de Dijon judgment of the European Court of
Justice,33 this rule has allowed European consumers to choose between differ-
ent goods produced in conformity with diverging national regulations.
Meanwhile, the principle of mutual recognition has expanded from the area of
free movement of goods into the areas of right of establishment and freedom
to provide services, and even beyond its traditional boundaries. Aside from the
fundamental economic freedoms, mutual recognition is now also advanced as
a leading principle in other parts of European Union law, in particular safety
and security.34
32 For policy innovation and learning from parallel experimentation, yardstick

competition, and laboratory federalism, see Salmon (1987, p. 24); Vanberg and Kerber
(1994, p. 193).
33 Case 120/78, Rewe-Zentrale AG v Bundesmonopolverwaltung für
Branntwein [1979] ECR 649.
34 Joint cases 187/01 and 385 /01, Gözütok and Brügge [2003] ECR I-1345.
The expansion of the principle of mutual recognition has not yet reached its
limits, since it may be seen also as an appropriate institutional device to break
down non-tariff barriers to trade in the international context and promote a
world-wide integration of markets. In this context, it should be noted that the
EU principle of mutual recognition may itself conflict with the non-discrimi-
nation rules of the WTO since it applies only to products imported from other
EU Member States and not to products manufactured according to the regula-
tions of a third country. Redesigning mutual recognition as an open system
applying at the world-wide level would overcome this problem. According to
Weiler, ‘it will not be long before a WTO Panel and/or the Appellate Body will
pronounce a WTO version of the Doctrine of Parallel Functionalism (or
mutual recognition)’.35
Several authors have welcomed the principle of mutual recognition as an
instrument for enabling regulatory competition (allowing states to pursue their
own economic and social policy) and impeding the centralization of regulatory
powers.36 In recent papers, Kerber and Van den Bergh argue that mutual
recognition is neither an appropriate rule for enabling a sustainable process of
regulatory competition nor an effective device for preventing centralization
and harmonization.37 In their view, the principle of mutual recognition suffers
from several inconsistencies and therefore does not ensure a stable allocation
of regulatory powers in a multi-level system of rule making.
First, the principle of mutual recognition rule established by the ECJ is a
conditional rule: it applies only if the objectives or effects of diverging
national regulations are equivalent. This conditional rule reduces the scope for
a meaningful form of regulatory competition. In practice, EC Member States
must submit all envisaged new technical rules to a special committee. This
may have the effect that the rules are adapted before they become part of
national legislation, so that the final outcome closely resembles harmoniza-
tion. Also, the Cassis de Dijon ruling allows that market integration concerns
may be given less weight than the protection of the general good in the host
state.38 This possibility to justify national rules on the basis of ‘mandatory
requirements’ of general interest does not create a stable solution and will initi-
ate a dynamic process of re-allocating regulatory powers.
Second, the scope for regulatory competition that may emerge under a
regime of mutual recognition is very limited, since only buyers of the import
35 Weiler (2005, p. 25) at p. 58.

36 Sun and Pelkmans (1995, p. 67); Weiler (2005) op.cit. and Pelkmans (2007,
p. 699).
37 Kerber and Van den Bergh (2008a, p. 447); Kerber and Van den Bergh
(2008b).
38 Weatherill (2005, p. 60).
state and not sellers may choose between different regulations. For example,
German consumers may prefer goods produced in conformity with Italian
rules but German firms are not free to adapt their production according to
Italian law. Mutual recognition does not help to preserve decentralized regula-
tory powers, because the states lose the regulatory autonomy over their domes-
tic markets and retain regulatory power only over domestic firms. In this way,
existing regulations for domestic markets are transformed into hardly defensi-
ble regulations for domestic producers. Complaints about ‘reverse discrimina-
tion’ may lead to problematic industrial policy efforts for improving the
international competitiveness of domestic firms.
Third, the deficiencies described above cannot be overcome by making
mutual recognition an unconditional rule that would also offer a stable solu-
tion. The reason is that such rule may cause a race to the bottom. If this risk
materializes, mutual recognition tends to be an inferior rule compared with
(minimum) harmonization or the country of destination principle. In the oppo-
site case, a free choice of law rule, which creates a free market for regulations
and the highest possible degree of regulatory competition, will be superior to
mutual recognition.
In sum, the rule of mutual recognition does not seem to be a stable conflict-
of-law rule in a two-level system of regulations. Its inconsistencies and prob-
lems suggest that it will initiate a process leading to (de facto) harmonization,
back to the country of destination principle, or to a free choice of law rule.
6.3 Race to the Bottom or Race to the Top: Theoretical Work and
Empirical Evidence
If there is a sufficient degree of decentralization and conflict-of-law rules

leave scope for regulatory competition, the question arises as to whether such
competition will lead to ‘bad’ law (race to the bottom) or ‘good’ law (race to
the top). As a preliminary remark it should be stated that in policy discussions
it is often unclear what should be regarded as the ‘bottom’ and what should be
seen as the ‘top’, provided there is scope for a race among legislators in either
of these directions. For example, the EC Treaty states that the European
Community strives for a ‘high’ level of consumer protection. This could be
seen as the top to be reached. However, if this approach justifies far-reaching
paternalistic interventions in markets, the resulting consumer protection rules
may cause severe inefficiencies that in terms of legal quality resemble the
bottom, rather than the top. Hence, to enable a meaningful discussion, criteria
for judging the quality of law should be clearly defined. In this chapter, alloca-
tive efficiency is used as the relevant benchmark. Consequently, competitive
processes should lead to an ‘optimal’ level of regulation and from this norma-
tive perspective neither the bottom nor the top is desirable.
The risk of race to the bottom may be rephrased in economic terms as the
danger of prisoners’ dilemmas.39 If states inform each other on the content of
their regulatory policies, they may try to find solutions that maximize their
joint welfare. For example, they may jointly decide on taking steps to protect
air quality and share the costs of the necessary regulatory measures. However,
if states do not communicate with each other and are trapped in a prisoners’
dilemma game, regulatory laxness may occur when rules have to be enacted
and implemented. A state may wish to attract polluting business knowing that
it will gain a competitive advantage, provided that other states do not act in the
same way. However, if all other states anticipate such action and act similarly,
only the businesses will gain. The result of this prisoners’ dilemma is a ‘race
to the bottom’. Game theory suggests that prisoners’ dilemmas may be over-
come through communication. By taking decisions jointly at the central level,
states may be able to prevent regulatory laxness and make sure that welfare
enhancing measures are taken and implemented.
There is a very large theoretical economic literature that examines whether
competition between regulators may cause a ‘race to the bottom’. The
outcomes of these theoretical studies are highly dependent on the assumptions
used in the underlying theoretical models. Under certain assumptions a ‘race
to the top’ may ensue. Taking environmental law as an example, there is no
unambiguous support in the theoretical literature for the claim that there will
be a ‘race to the bottom’ over environmental standards. Game theoretic analy-
ses show that interstate competition may produce either suboptimal lax or
suboptimal stringent environmental regulations.40 Given that economic theory
is not conclusive, scepticism about ‘race to the bottom’ claims is further
warranted as long as there is no (or very little) empirical evidence supporting
such claims. The ‘race to the bottom’ story is based upon the belief that states
may wish to attract industry by lowering their environmental standards.
However, it seems unlikely that firms will relocate existing plant and incur the
costs of acquiring a new site, building a new facility and recruiting and train-
ing new workers to save pollution control costs that amount to only a small
percentage of the total value of sales.
Results from US studies indicate that there is little direct evidence of a rela-
tionship between the stringency of environmental regulations and plant loca-
tion decisions.41 Also, research by Holzinger and Sommerer covering 19
European Member States (as well as the USA, Mexico and Japan) has not
found a single case to support the risk of a ‘race to the bottom’ in environ-
mental law. On the contrary, a general tendency towards upgrading the envi-
39 Rose-Ackermann (1992, p. 167).

40 For a critical overview, see Revesz (1997, p. 535).
41 Jaffe et al. (1995, p. 132).
ronmental standards has been observed.42 Holzinger and Sommerer show that,
theoretically, a ‘race to the bottom’ may develop in the case of free trade and
unconditional mutual recognition of product standards and product processes.
Conversely, a ‘race to the top’ may develop if symmetric firms (who have the
same cost conditions and the same market share) are hindered by trade restric-
tions. Since neither of these scenarios is sufficiently realistic in the European
Union (mutual recognition does not apply unconditionally and firms are
seldom symmetric), in practice there may be no race at all and an upgrading
of environmental standards may be better explained by harmonization
measures decided at the central level.
The conclusion seems to be that the scope for regulatory competition in
environmental law is limited and that its outcomes are uncertain. Observed
processes to upgrade environmental standards are not necessarily an outcome
of regulatory competition but may be simply the consequence of harmoniza-
tion measures favoured by politically powerful groups. This leads us to the
important insight that an analysis of (de)centralization has to take account of
potential political distortions, which will be briefly discussed in the next
section.
7 A PUBLIC CHOICE PERSPECTIVE

The economic analysis above has made clear that arguments may be advanced
in favour of both decentralization and centralization. So far, the discussion has
proceeded on the assumption that regulatory powers are allocated in such a
way as to maximize economic welfare. However, private politics rather than
welfare considerations may be the driving force behind (de)centralization. It is
well known that private interests may have an important impact on the
contents of legal rules. The same is true with respect to decisions about
whether to regulate at higher or lower levels of government. Interest groups
will have a preference for rules being formulated at the level at which their
strength is greatest relative to that of other groups with divergent interests in
the same area.43 Hence, the question arises as to which interest groups may
succeed in rent-seeking at the expense of the public at large. The role of pres-
sure groups and bureaucracies will be analysed in turn.
Interest groups may be strong enough to pervert the legislator and regulatory
agencies. When not all interests are equally well represented, regulatory capture
becomes possible. A general lesson from Public Choice is that industry groups
42 Holzinger and Sommerer (2007, p. 183).

43 Noam (1982, p. 278).
will be more powerful lobbies than consumer groups. To be a powerful lobby,

the interests represented must be homogeneous and benefits from lobbying
should not flow to outsiders, who do not pay for the benefits generated (free-
riders). Consumer groups are large and have heterogeneous interests; exclud-
ing free-riding is equally very difficult or impossible. By contrast, some
industry interests are represented by well-organized pressure groups that are
able to cope with the free-riding problem easily through compulsory member-
ship. This explains why the liberal professions (medical doctors, attorneys)
have been successful in generating rents for existing practitioners.44 Large
firms will also be powerful lobbyists: they may gather information about the
substantive and procedural issues concerned at low cost (as a by-product of
their other activities); they may also have more at stake and may therefore be
better able to spread the fixed costs of information acquisition.
The possibilities of regulatory capture have their limitations in the design
of regulatory institutions. Although appropriate institutional design will not
prevent regulatory capture altogether, it may nevertheless limit its scope.
Three axioms are crucial to prevent regulatory capture: accountability, inde-
pendence, and transparency. Regulators should be responsible for the conse-
quences of their decisions; they should be independent from the interest
groups they are supposed to control; and decision processes should be trans-
parent to outside observers.45
These lessons from Public Choice are also relevant when allocation of
competences in (quasi-)federal structures must be assessed. The case for
centralization may be strengthened if it is a way of minimizing the impact of
pressure groups and favouring efficient legal rule making. For example, pres-
sure groups from the small and medium-sized retailing trade may be able to
lobby national governments to enact fair trade rules that reduce competition
but may fail in obtaining the same results at the European level. Indeed, the
European Court of Justice has struck down many ‘fair trade’ rules that were
inconsistent with the free movement of goods within the European Union.46
Conversely, if rent-seeking is pervasive at the central level, decentralized deci-
sion making will be preferable from an economic welfare perspective. For
example, pressure groups from industries that comply with strict environmen-
tal standards may lobby in Brussels to have these standards imposed in other
countries, so that they may gain a competitive advantage in international
trade.47
44 See OECD, Competitive Restrictions in Legal Professions, Paris, 2007

(DAF/COMP/WP2(2007)3).
45 These criteria are taken from Neven et al. (1993, p. 175).
46 For an overview, see Barnard (2004).
47 See Faure and Lefevere (1995, p. 321).
Attention must also be drawn to the bureaucrats’ self-interest in power and

prestige. According to classic Public Choice analysis, the behaviour of bureau-
crats may be explained by assuming that they pursue their self-interest, which
includes salary, reputation and power. Unlike managers of private firms in
competitive markets, they do not have to assess the marginal costs and bene-
fits of their actions. As a consequence, the budget of the bureau will be maxi-
mized regardless of the quality of the bureaucrats’ performance and productive
inefficiency will ensue.48 However, the extent of the welfare losses may be
reduced by competition between different bureaux which have to compete for
budget allocation49 (as is the case with the different Directorate Generals
within the European Commission). In addition, high status and agreeable work
tasks, rather than budget maximization, may secure the bureaucrats’ self-inter-
est in power and prestige better.50 In the discussion on the allocation of compe-
tences, European bureaucrats may tend to favour centralization and
harmonization of laws since these are ways to maximize their power and pres-
tige. In this respect the argument that harmonization is needed to create a
‘level playing field’ for industry in Europe must be critically assessed (see
Section 6.1 of this chapter).
Linking the above insights to the topic of this chapter, it could be argued
that centralization (including measures of harmonization) of private law is
needed since nation states are not always able or may not be willing to enact
‘good’ laws that promote overall economic welfare. Such a claim is difficult
to support with respect to facilitative law (for example, rules on formation and
interpretation of contracts), since the parties involved may draft their own sets
of rules. The argument would mainly apply to regulatory law: national states
would not always be inclined or able to enact welfare enhancing rules protect-
ing victims of torts or weak contract parties, in particular consumers. As to the
latter, it may be argued that in many states consumer law is not yet well devel-
oped. However, a low degree of regulatory intervention may indicate that citi-
zens are not willing to pay the price for mandatory consumer protection.
Conversely, it should be acknowledged that there might be a minimum level
of protection on which all consumers would agree, even if it results in higher
consumer prices. Political failure to enact consumer laws in some states may
deprive consumers of this protection.
There remain two problems with the Public Choice justification in the field
of private law. First, it is assumed that central rules are more efficient than
decentralized rules. This is a far-reaching claim. Even if rules may be imposed
48 Niskanen (1971).
49 Ogus (1994, p. 96).
50 Dunleavy (1991).
against the will of an individual state, there is no reason to assume that the
central law-maker will enact efficient rules. A critical look at EC Directives
immediately shows that several rules of consumer protection may cause inef-
ficiencies rather than curing them. EC Directives often exhibit a lack of under-
standing of the basic economic insights and thus fall a long way short of
providing an effective and efficient response to market failures in consumer
markets.51 Second, the Public Choice reasoning applies only if there are
lawmaking powers at the central level that supersede (the absence of) national
legislation, such as in the case of the European Community. By contrast, the
argument is not relevant at the global level if states have to consent to any
obligation that is imposed upon their citizens and firms.
8 LESSONS FOR GLOBALIZATION OF PRIVATE LAW

As shown above, economic analysis of law provides useful insights for the
policy debate about the desirability of competition between legal rules or the
need to harmonize laws. If national rules cause substantial negative interstate
externalities, if there is a risk of a ‘race to the bottom’ or if significant scale
economies and/or transaction cost savings can be achieved by increased legal
uniformity, a case for central rule making, including measures of harmoniza-
tion, can be made. Conversely, if preferences concerning the contents of legal
rules diverge strongly, relevant knowledge is not centrally available (or only
at high costs), a ‘race to the top’ is possible or learning processes are very
important, decentralized decision making and competition between legal rules
may be preferable from an economic welfare perspective. The assessment of
the costs and benefits of (de)centralization and harmonization varies across
different fields of law, and even within a single legal discipline a refined analy-
sis will be necessary to be able to conclude whether a particular legal rule
should be centrally decided and harmonized or not. Within the confines of this
chapter, it is not possible to provide final answers to the question as to which
rules of private law should be harmonized. Only a number of general remarks
will be made; some examples taken from the areas of tort law and contract law
will illustrate the general line of reasoning.
Aside from the problems concerning the desirability of centralization
(including harmonization measures in the area) of private law, it is pertinent to
recall that a world-wide private law may simply be impossible. Within the
European Union, states have delegated authority to European institutions (the
European Commission, the Council of the European Union and the European
51 Examples are discussed in Van den Bergh (2007b, pp. 196–7).

Parliament) and the consent of all EU Member States is not required to

centrally establish legal rules. Moreover, the principle of mutual recognition
developed by the European Court of Justice may imply that the application of
national rules is considered contrary to the four economic freedoms. In this
way, an impetus towards harmonization may be given by judicial rule making.
By contrast, within the WTO there is no comparable institutional framework
for harmonizing laws in order to reach market integration goals. Agreements
still have to be negotiated by individual states. Since these states have retained
their sovereignty they may request that imported goods and services fully
comply with national rules. In addition, in the absence of an international court
enjoying powers comparable to those of the ECJ, there is no general rule based
on case law that allows putting aside national rules that infringe economic
freedoms. As a consequence, the scope for enacting harmonized rules of
private law is still very limited at the global level. Hereinafter, the economic
arguments that have been introduced in the previous part of this chapter will
be assessed anew, in order to find out to what extent they support either
centralization combined with harmonization or decentralization and competi-
tion between rules in the field of private law.
8.1 Interstate Externalities
A major economic argument in favour of centralist decision making, in partic-

ular harmonization of laws, is the need to internalize negative interstate exter-
nalities. From an economic point of view states should be able to choose the
rules which best satisfy the preferences of their citizens as long as they also
bear the full costs of their legal decisions.52 Where trans-boundary effects
occur central rule making may be required to avoid costs being thrown upon
other jurisdictions. However, compared with other fields of law, such as envi-
ronmental law,53 the relevance of the externalities argument in the field of
private law is limited. To justify central or global private law two things must
be shown. First, rules of private law must affect transactions with interstate
repercussions. Second, it must be impossible to fully internalize negative
externalities arising from interstate transactions by applying national rules of
private law. Both conditions will not be easily satisfied. Even if this is the case,
the central rule must provide an adequate answer to the externalities problem
and this goal may not be reached due to Public Choice problems (rent-seeking
by pressure groups active at the central level).
52 The economic theory underlying this important insight is the Tiebout model
on optimal provision of public goods (Tiebout op.cit.). See also the literature on
economic federalism, Oates (1999, p. 1120).
53 See Faure (2000, pp. 467–508).
In the search for trans-boundary torts, product liability can be regarded as

a major area of private law to be governed by central rules. Sellers of defec-
tive products should not escape liability when harm occurs outside the terri-
tory of the exporting state. Manufacturers of defective products are generally
liable in damages for harm suffered in export markets. If the law of the export
state does not allow recovery for certain types of damage or even totally
exempts the product from the scope of the product liability law, compensation
will be available according to the law of the import state if the law of the latter
country does not contain similar exclusions.54 Hence, if a defective product is
exported, negative externalities do arise but they do not automatically consti-
tute a sufficient cause for legislative action at the central or global level.
A global private law would accomplish a useful task only in very specific
circumstances, where the rules of the import country do not allow a full inter-
nalization. This task would be to fill the gaps of national tort laws when, for
some reason, national legislators cannot easily cure these deficiencies. An
example could be a state law which does not easily allow recovery since the
requirement of causation is too stringent or immaterial losses cannot be
compensated. Due to such limitations, a full internalization of the externalities
caused by tortious behaviour may not be possible. This line of reasoning
points to inefficiencies in national state laws and thus parallels the Public
Choice argument in favour of central rule making (see Section 7 of this chap-
ter). However, efficiency requires that the goal of full internalization can be
more easily reached by central rules than by rules enacted at lower levels. If
the opposite scenario holds, Public Choice arguments favour decentralization.
Interestingly, product liability was the first topic covered by the harmo-
nization process in the European Union.55 Even though product liability is a
good candidate for harmonization, the EC Directive does a poor job in
addressing the relevant economic issues.56 From an economic perspective, it
is remarkable that the EC Directive does not harmonize different legal
approaches to problems of causation or compensation of immaterial losses.57
Deficiencies of national laws may prevent a full internalization of the
Community-wide externalities and EC law may be justified for filling these
gaps. Similar problems arise with respect to the proof of causation in product
liability cases but this issue too is not covered by the harmonization process.
In addition, the EC Directive increases the risk of cross-border externalities by
giving Member States the option of imposing a ceiling (of not less than €70
54 The danger that all Member States laws provide for lax rules, which would
cause a ‘race to the bottom’, is discussed below.
55 Directive 85/374, OJ, 1985, L210/29.
56 Faure (2000, p. 467).
57 Van den Bergh (1998, pp. 140–45).
million) on damages resulting from death or personal injury caused by identi-

cal items with the same defect. Rather than inefficiencies being cured, the
externalities problem is thus aggravated. This example shows that the inter-
state externalities argument does not play an important role in the discussions
on harmonization of tort law. It also warns against the view that central rules
are easily able to correct inefficiencies of rules enacted at lower levels of
government.
At first sight, the externalities argument does not seem convincing in the
field of contract law. Generally, contracts do not cause effects for third parties
because the rights and obligations agreed upon only concern the contracting
partners. This does not imply, however, that the externalities problem is
entirely irrelevant. It is indeed possible that a network of contracts generates
externalities. Decisions as to quality and price taken by a trader may have both
positive and negative effects on downstream or upstream salespersons of the
same distribution chain. For example, a decision to lower quality to achieve
higher profits may bring short-term benefits to a single retailer, but will harm
the distribution network at large. Upstream liability of producers and whole-
sale sellers is necessary to make sure that proper incentives to ensure quality
are given to parties with actual control over the likelihood of product defects.
Again, it must be added that a showing of externalities is in itself no sufficient
reason to justify harmonization of laws. It must be impossible to internalize
the externalities by applying national rules of contract law; for example,
because contract remedies are made unavailable by technical reasons of
national law. The task of rules enacted at the central level would then be to fill
the gaps when performance or compensation claims and, therefore, full inter-
nalization of cross-border externalities are impossible.
Also here an example is appropriate to show that the externalities problem
is not a major concern in the case of centralization and that there is no guar-
antee that efficient central rules will be designed. The European legislator does
a poor job in curing interstate externalities in international distribution
networks. In the EC Directive on consumer sales contracts and guarantees, the
important matter of upstream liability is curiously left out of the harmoniza-
tion project.58 There is no rule to avoid the fact that claims in cases of non-
conformity with the contract terms stop at the border. A consumer can sue a
retailer, who could exercise his right of redress against a wholesaler or the
importer, but the availability of a right of redress against the producer in an
export country is left to the national law of that country.
58 See consideration 9 of Directive 1999/44 (OJ, 1999, L171/12).

8.2 Regulatory Competition
In line with the above analysis (see Section 6) two questions should be asked: (i)
May regulatory competition develop in fields of private law? (ii) Is there a risk
that such competition may cause a race to the bottom? Theoretically, private law
could be fully decentralized and free choice of law could allow competition
amongst a large set of diverging rules. In practice, there is a growing tendency
to decide contents of rules of private law at a central level and competition is
limited by harmonization measures and excluding free choice of law. The
European Union has started a very ambitious programme of full harmonization
of rules protecting consumers that limit the possibility of Member States to
freely decide the contents of contract law.59 Freedom of choice for consumers is
excluded by Article 5 of the Rome Convention, which stipulates the binding rule
that cross-border transactions are governed by the law of the country where the
consumer resides.60 There is no comparably ambitious centralization plan in the
area of tort law, so that the scope for regulatory competition is larger and a risk
of a race to the bottom cannot totally be excluded.
As the existing harmonization measures still leave scope for regulatory
competition, the risk of a race to the bottom scenario on the markets for private
law in Europe does not seem high. Theoretically, the risk of a race to the
bottom in consumer law has been shown by Sinn, who argues that the market
failures addressed by consumer law will re-emerge if competition between
consumer protection rules is made possible.61 This reasoning requires infor-
mation asymmetries on markets for legislation that may be less severe than
information asymmetries in ordinary markets.62 Moreover, in the real world
consumers are protected by the rules of their home state. To attract industry by
means of ‘bad’ consumer law would thus imply that a national legislator
decides to make its own consumers worse off. The presence of politically
powerful consumer groups may make this choice unlikely. It seems equally
implausible that firms will relocate plants to profit from lenient rules of
consumer contract law. Other factors, such as the tax rate, the availability of
public services and the unionization of labour forces, may be far more impor-
tant decision criteria in location decisions of businesses. Finally, if rules of
contract law are efficiency motivated they will increase and not decrease the
competitiveness of firms. States may thus also have incentives to engage in a
‘race to the top’.63
59 See the references in footnotes 1 and 2.

60 For a discussion and examples, see Wagner (2002, pp. 1005–1006).
61 Sinn (1997, p. 247).
62 Kerber and Van den Bergh op.cit. (2008b).
63 Van den Bergh, op.cit. (1998, pp. 137–9).
In the field of tort law, the limited reach of the harmonization measures
leaves more scope for regulatory competition. For example, the EC Product
Liability Directive leaves freedom to the Member States to decide whether
product manufacturers may limit their liability by profiting from a develop-
ment risk defence. It has been argued that the optional nature of the develop-
ment risk defence may distort business decisions as to where to locate and that
businesses may have a preference to ‘test’ products in states that maintain the
defence.64 This example shows that the Directive is not an effective instrument
to curtail a ‘race to the bottom’ if such scenario materializes. However, the fear
of a risk of a race to the bottom may be misplaced. Not only is there no hard
empirical evidence that supports the decision to (re)locate. Even more impor-
tantly, testing products in host states may increase global welfare by over-
coming the negative impact of the exclusion of the development risk defence
in home states. In spite of its potential disadvantages, legal diversity with
respect to the admissibility of the development risk defence may protect incen-
tives to innovate and thus preserve important learning processes in the
market.65
The above analysis assumed that the possibility of a race to the bottom is
low since states can only acquire benefits in the case of physical migration of
firms. In the area of contract law and tort law, this is a realistic assumption in
as far as states cannot charge foreign firms for using their legal system. The
discussion on regulatory competition in the field of corporate law shows that
regulatory competition becomes intense if states are able to charge fees for
making use of their company law. Romano reports that 16 per cent of the total
tax revenue of Delaware is derived from incorporation fees.66 However, it
seems less feasible to charge fees for using contract or tort doctrines developed
in a single jurisdiction. In sum, the risk of a race to the bottom is no convinc-
ing argument to justify centralization and harmonization of laws.
8.3 Cost Savings
In the previous sections it was shown that neither the interstate externalities
argument nor the risk of a race to the bottom justifies far-reaching centraliza-
tion of private law. This leads to the question of whether cost savings may
justify the enactment of rules of private law at central levels of government.
Besides the level playing field argument, unification and harmonization are
usually defended because of the cost savings they may generate and the
increase in international trade that may ensue as a beneficial consequence of
64 Weatherill, op.cit. (p. 145).

65 Geistfeld (2000, pp. 362–4).
66 Romano (1993, p. 89).
these cost reductions. Before investigating the merits of the cost savings argu-
ment for unification or harmonization of private law, it is pertinent to recall
that an exclusive focus on potential benefits in international trade neglects the
possible disadvantages of centralization plans. Below, the relevance of the cost
savings argument and its linkage to benefits of increased international trade is
further analysed. The potential costs of centralization are discussed in Section
8.4.
It may be recalled from the analysis in Section 5 that cost savings may take
two forms: scale economies and transaction cost savings. Scale economies
may be important if information must be collected about costs and benefits of
alternative rules: for example, to enact efficient safety standards. However,
such scale economies seem to be of less importance in the field of private law.
They are absent when facilitative rules (enabling formation and execution of
contracts) must be formulated. In the case of regulatory rules (such as
consumer protection regulation) centralization may generate economies in
information production. However, these cost savings may be outweighed by
the loss of information about the effects of alternative rules generated by regu-
latory competition.
Transaction cost savings result from greater legal certainty in the case of
uniform or harmonized rules of private law. As discussed above, in interna-
tional trade legal certainty may remain an illusion as long as there is no
uniformity in the way legal rules are interpreted. Whereas the European
Court of Justice may contribute to the achievement of transaction cost
savings through its preliminary rulings, there is no comparable court which
could provide legal certainty at the global level. Private ordering mecha-
nisms may fill this gap. In international trade, standardized contracts (lex
mercatoria) and reputation building may be more powerful tools to cope
with uncertainty on legal rules than harmonization measures decided by a
central public regulator. Finally, even if public ordering mechanisms
succeed in creating more legal certainty it remains doubtful that cross-border
trade will increase after harmonization of laws. As discussed above, hard
evidence on increased trade as a result of harmonization of laws is lacking
and the real impact of diverging legal rules on trade flows across countries
remains largely unknown.
Given the large ambiguities that characterize the cost savings argument, it
will be clear that centralization of private law at the global level cannot easily
be justified by increases in international trade that are the consequence of
greater legal uniformity. Hence, there is a risk that the cost savings argument
is abused in the policy discussions to justify centralization. This risk may be
contained by making use of distinctions that properly account for the differ-
ences relating to both the size of the transaction cost savings and their impact
on trade flows across countries. In its present form, the market integration
argument is far too general; it lacks distinctive power67 and owes its strength
more to the fact that it is constantly repeated than to convincing analysis. The
quality of the policy discussion will be improved by distinguishing areas
where transactions may be impeded by differences in legal rules and areas
where such problems can be overcome easily. Both the qualifications of the
trading partners and the size of the risk factor in international trade transac-
tions may be helpful criteria to downsize the cost savings argument to its right
proportions.
The ‘barriers to trade’ argument seems less powerful in business-to-busi-
ness (B2B) relations than in business-to-consumer (B2C) relations. The
reasons are threefold. First, firms can hire experienced lawyers and may more
easily inform themselves about differences in legal rules than individual
consumers are able to do. Second, firms may resort to private ordering mech-
anisms that circumvent the problems resulting from diverging legal rules.
Even under legal uncertainty firms may develop joint welfare maximization
strategies if they are involved in repeated transactions, recognize opportunis-
tic behaviour and can impose sanctions on non-cooperative behaviour. By
building long-term relationships (relational contracts) and resorting to trade
intermediaries, firms will become repeat players. Firms may also be able to
assess whether a contract party behaves cooperatively by limiting the transac-
tions to narrowly defined groups. The membership of such groups may then
signal that a trading party kept his promises in the past and is likely to behave
also cooperatively in the future to avoid tough sanctions, such as exclusion.
Cooperative behaviour may be stimulated further by specific investments68 or
securities, such as a bank warranties.69 Third, firms may establish autonomous
private rules and achieve cost savings through standardization of their
contracts. In sum, firms active in international trade have different possibili-
ties to overcome problems caused by legal diversity and, therefore, the nega-
tive impact of legal uncertainty on the volume of international trade may be
limited.
The picture is different in business-to-consumer contracts. First, consumers
face greater difficulties when they want to inform themselves about differ-
ences in legal rules. Second, reputation mechanisms do not work in the same
way as in B2B contracts. Third, there is no equivalent of a lex mercatoria for
international transactions between businesses and consumers. It should be
added that reputation building may develop on the internet (for example,
through online reputation channels, such as www.tripadvisor.com) and that
67 See also Faure and Hartlief (2003, p. 173).

68 Schmidtchen (1994, pp. 57, 76; 1995, p. 56).
69 Rühl, op.cit. (p. 19).
internet firms (such as Amazon) may equally develop standardized consumer

contracts. However, one may doubt whether market failures in consumer
markets could be sufficiently cured by these mechanisms.70
In addition to the distinction between B2B and B2C contracts, the size of
the risk in international trade may be a second factor in assessing the relative
importance of the cost savings argument. Deliveries of goods are likely to pose
fewer problems than contracts relating to services. For simple goods that
require no post-sales service, such as books, compact discs, tobacco products
and alcoholic drinks, an international market has developed in the absence of
uniform contract law.71 By contrast, contracts for complex services that are
entered into for a long time period and entail substantial risks may not develop
smoothly at the international level without a supporting legal framework.
Whereas private ordering mechanisms may work relatively well in the former
case (as it can again be shown by the Amazon example), it is doubtful that
these devices can be a substitute for central regulation in the latter case. The
recent financial crisis has shown that the reputation mechanism does not
suffice to prevent huge risks and that central rule making at the global level is
needed to enable the continuation of international transactions.72
A look at existing EC Directives on consumer law shows that the European
legislator is not concentrating its efforts on areas where the barriers to trade
argument appears to be the most convincing. The EC Directive on doorstep
selling73 lacks the cross-border component;74 the EC Directive on time-
sharing75 does not address the long-term problems of poor maintenance
services; and the EC Directives on financial services76 limit themselves to
information remedies and pay insufficient attention to the need for substantive
rules to guarantee contract quality and performance.
In conclusion, the international trade argument referring to cost savings in
order to justify centralization is much stronger in the case of B2C relations
than in the context of B2B contracts and probably strongest in the case of B2C
consumer contracts for delivery of complex services.
70 Rühl, op.cit.
71 Wagner, op.cit. (pp. 1016–17).
72 Schaefer (2008).
73 Directive 85/577, OJ 1985 L372/31.
74 See also the criticisms by Weatherill, op.cit.
75 Directive 94/47, OJ 1994 L280/83.
76 Directive 87/102, OJ 1987 L42/48; Directive 2002/65 OJ 2002 L271/16. For
a discussion, see Weatherill, op.cit. (p. 86).
8.4 Benefits of Decentralization
An economic analysis of harmonization of private law leads to the conclusion

that arguments in favour of unification and harmonization are weak.
Conversely, economic arguments in favour of decentralization and competi-
tion between legal rules are strong. Heterogeneity of preferences, the impor-
tance of learning processes and decentralized availability of information all
plead in favour of enacting rules at the lowest possible level of government.
First, different rules of private law may satisfy a greater number of diverg-
ing preferences. The discussions in the legal literature on the goals of tort law
and contract law illustrate that preferences of citizens may differ substantially.
If a country regards tort law mainly as a compensation mechanism, it may
enact rules that are absent in tort laws of other countries that focus more on
deterrence and aim at guaranteeing compensation by relying on insurance
markets.77 The different views on the desirability of punitive damages78 and
the compensation of non-pecuniary losses79 nicely illustrate this heterogene-
ity. Also in the field of contract law preferences differ, as can be learnt from
the debate on the desirable amount of consumer protection. Rich countries
may prefer a high level of consumer protection irrespective of the price
increases such a rule may cause, whereas poor countries may prefer cheaper
products that can be financially afforded by a large group of consumers. One
may object that, from a policy perspective, it may be desirable to guarantee a
minimum level of consumer protection to all citizens. Politicians may feel that
low standards infringe widely held perceptions of equity and justice, or even
violate human rights.80 In the European context, the consequence would then
be that the preferences of the citizens can be overruled by the political desire
to provide a basic quality of life for all European consumers. However, to
guarantee a basic quality of life to European citizens, it would be much more
important to assure the provision of a minimum level of public health and
social security. The latter areas are very sensitive fields of policy making and
EU Member States have been insisting on keeping their sovereignty in decid-
ing on those issues. In the current state of affairs, it thus seems rather odd to
enact European rules to provide a minimum quality of consumer goods, if a
minimum protection for more basic needs cannot be guaranteed.81
Second, different rules of private law allow important learning processes
and may improve the quality of law through innovation. Comparative lawyers
77 Van den Bergh, op.cit. (1998).

78 See Koziol and Wilcox (2009).
79 See Rogers (2001).
80 Ogus, op.cit.
81 Faure (2003, pp. 67–8).
will generally agree that competition for the best legal solution has been
occurring in Europe. Rules of contract law have been converging towards the
most efficient solution, thanks to ‘yardstick competition’ initiated by the writ-
ings of legal scholars who were impressed by the blessings of a foreign legal
rule.82 Also, the evolution of the consumer laws of EC Member States offers
different examples illustrating the potential scope of the learning processes.
Examples include the sanction for sending unsolicited products to consumers,
the regulation of cooling-off periods and the way to judge deception in adver-
tising cases.83 The counterargument that experimentation will lead to an
unmanageable amount of diverging rules and an intolerable level of legal
uncertainty can be easily rebutted. Mutual learning processes may alleviate the
convergence of legal rules and amount to an ex post or market-based harmo-
nization of laws. Hence, competition between legislators in the EC does not
necessarily imply that rules will greatly differ. Whereas unification and
harmonization by means of central rules (Regulations and Directives) implies
forced coordination of legislative provisions in the Member States, dynamic
competitive processes may produce voluntary harmonization. The result of the
process of innovation and subsequent amendment may be a substantial unifor-
mity across the EC Member States.
Third, information advantages at lower levels of government plead in
favour of decentralization. Problems of information asymmetries in consumer
markets require solutions that are optimally adapted to local market condi-
tions. For example, consumers living in countries with less developed market
economies (which previously had a state planned economy) may be more
vulnerable to certain types of unfair trade practices, such as pyramid promo-
tional schemes. The different degrees of evolution of the market economy
should be reflected in different levels of mandatory information duties and
concomitant sanctions. Also, the regulator who is closest to the consumers in
question is best placed to enact the necessary information regulation. A central
regulator would face an almost impossible task in identifying the information
that must be conveyed and the way in which it must be communicated in order
to allow consumers to make an informed choice, thereby fully taking account
of their divergent expectations as to the variety and quality of products offered.
Fourth, decentralization enables regulatory competition and a ‘race to the
top’. The most intense form of regulatory competition occurs under a regime
of free choice of law. Under this option, a market for consumer protection
rules emerges in which states offer national regulations as certifications to all
firms that are active in the market. The firms can choose freely between them
82 Wagner, op.cit. (p. 1012); Ogus op.cit. (pp. 412–13).

83 Van den Bergh, op.cit. (2007b).
and export their products and services if they are in conformity with one of the
national regulations. The decisive question is whether the consumers are capa-
ble of assessing the quality of the consumer protection rules. In this respect, it
should be taken into account that both the reputation mechanism and informa-
tion intermediaries, who have special knowledge and are able to monitor the
quality of these regulations, can help the consumers in their assessment of
diverging national regulations. If the information problem is solved, the most
important disadvantage of the free choice of law solution is eliminated. Other
disadvantages, such as higher costs through the parallel existence of several
regulations, are relatively small in comparison with the potentially great
advantages.
9 CONCLUSIONS
In a globalized world, difficult questions arise as to the optimal level of
lawmaking in multi-level territorial jurisdictions. The sovereignty of tradi-
tional nation states is challenged since it is by no means evident that the
balancing of costs and benefits at lower levels of decision making corresponds
with goals of welfare maximization at higher levels of government. In the
European Union, the goal of market integration is advanced by measures of
unification and harmonization of laws. It is regularly argued that differences
in legal rules make it difficult for firms to expand their operations beyond
national borders and that this divergence creates distortions of competition,
which are at odds with the need for a ‘level playing field’ for industry.
Moreover, consumers will be deterred from cross-border shopping since they
do not enjoy the same legal protection across the different EU Member States.
Under the consumer protection flag, a broad set of rules has meanwhile been
enacted that affect legal doctrines of national contract law and form the basis
of the new discipline of ‘European contract law’. Since, at the global level,
there are no institutions that enjoy similar regulatory and judicial powers the
impact of world trade law on the private law of nation states has remained
minor. However, there is a risk that the European model may inspire future
developments within the World Trade Organization and that limited or indirect
forms of harmonization of private law (for example, through a variant of the
principle of mutual recognition) may be considered necessary to achieve an
integrated global economic market. Hence, the time seems ripe for a critical
assessment of the free trade argument as a basis for justification of uniform or
harmonized rules of private law.
At first blush, the market integration argument seems plausible: legal
uncertainty and transaction costs increase with an expanding number of
diverging legal rules. However, a closer analysis shows that the argument,
even if it could be empirically substantiated, provides only a very partial view

and neglects the important insights from the economics of federalism. A full-
fledged economic analysis provides both arguments in favour of decentraliza-
tion (and competition between legal rules) and factors that may justify
centralization (and unification or harmonization of laws).
Arguments in favour of decentralization include: heterogeneity of prefer-
ences, better access to information at lower levels of government, and innova-
tion. Diverging rules may satisfy a greater number of preferences. The benefits
of decentralization further increase the more important are information bene-
fits at lower levels of government. Finally, a laboratory of diverging rules
enables learning processes that increase innovation.
Conversely, the need to internalize interstate externalities and the achieve-
ment of cost savings may justify centralization. Decentralized lawmaking is
efficient only if the benefits and costs remain within the territorial jurisdiction
that enacted the rules. If costs are thrown upon other jurisdictions, harmoniza-
tion measures may be needed to ensure that the negative externalities are inter-
nalized. Moreover, centralization may be defended by showing that legal
uniformity and harmonization measures decrease transaction costs and, in this
way, promote international trade.
To the above argumentation, one needs to add an analysis of the likely
effects of regulatory competition and a Public Choice assessment of
(de)centralization. If there is a serious risk of a ‘race to the bottom’, central-
ization and (minimum) harmonization may be needed to achieve efficiency.
By contrast, the chances of a ‘race to the top’ justify decentralization and
competition between legal rules. Finally, the relative power of pressure groups
at different vertical levels of decision making may support the choice in favour
of or against centralization.
It follows from the above that, in the European policy debate, the market
integration argument is often abused. The problem is not only that the nega-
tive impact of different legal rules on cross-border trade is not proven; in
particular, legal diversity is not isolated from other factors that have a bearing
on trade flows, such as language and cultural differences, and travel costs. But
even if the claim could be empirically substantiated, the benefits of an inte-
grated market would still need to be balanced against the costs of centraliza-
tion. The potential disadvantages include the impossibility of satisfying
different preferences, the loss of information benefits at lower levels of
government, less innovation, no scope for a regulatory race to the top, and an
increased impact of powerful pressure groups at the central level.
For the European policy maker this message seems to come (too) late, since
an overambitious programme to fully harmonize consumer contract law has
already been proposed. At the global level, the warnings of this chapter should
be taken even more seriously. Indeed, the arguments in favour of decentral-
ization become the more powerful the larger is the number of nations
involved: more diverging preferences, more information benefits at decentral-
ized decision levels, more scope for innovation, and an increased risk of regu-
latory capture at the central level. As long as the WTO does not enjoy similar
regulatory powers a ‘world consumer law’ still seems very far away. However,
it may take less time for the WTO to adopt some form of mutual recognition
principle and this may become the Trojan horse in a diversified global legal
order. The European experience shows that mutual recognition, far from
allowing regulatory competition and protecting against far-reaching central-
ization, has become an alternative pathway to achieve harmonization.
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Rühl, G. (2008), ‘Effizienzprobleme bei grenzüberschreitenden Rechtsstreitigkeiten’,
German Working Papers in Law and Economics, Article 17.
Salmon, P. (1987), ‘Decentralization as an Incentive Scheme’, Oxford Review of
Economic Policy, 3(2), p. 24.
Schaefer, H.-B. (2008), ‘Kommentar zu Giesela Rühl: Effizienzprobleme bei gren-
züberschreitenden Rechtsstreitigkeiten’, German Working Papers in Law and
Economics, Article 18.
Schmidtchen, D. (1994), ‘Neue Institutionenökonomik internationaler Transaktionen’,
Jahrbuch Neue Politische Ökonomie, p. 57.
Schmidtchen, D. (1995), ‘Territorialität des Rechts, Internationales Privatrecht und die
privatautonome Regelung internationaler Sachverhalte’, RabelsZeitschrift, p. 56.
Schmidtchen, D. and H.-J. Schmidt-Trenz (1990), ‘New Institutional Economics of
International Transactions: Constitutional Uncertainty and the Creation of
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che Ökonomie, 9, p. 3.
Sinn, H.-W. (1997), ‘The Selection Principle and Market Failure in Systems
Competition’, Journal of Public Economics, 66, p. 247.
Sun, J.M. and J. Pelkmans (1995), ‘Regulatory Competition in the Single Market’,
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Emergence of European Private Law’, Maastricht Journal of European and
Comparative Law, 5, pp. 129–52.
Van den Bergh, R. (2000), ‘Economic Criteria for Applying the Subsidiarity Principle
in European Environmental Law’, in R. Revesz, P. Sands and R. Stewart (eds),
Environmental Law, the Economy, and Sustainable Development, Cambridge:
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Europa, Stuttgart: Lucius & Lucius, pp. 183–206.
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4. Globalization and harmonization of
international trade law
Sieg Eiselen
1 INTRODUCTION
The phenomenon of globalization is speeding up in the current century.
Although there is as yet no clear and generally accepted definition of what
exactly globalization means and includes, there are a number of core charac-
teristics which can be used to describe the phenomenon in international trade.1
Globalization is characterized by the increasing way in which international
borders are becoming irrelevant, especially in respect of international trade,
due to the modern forms of transport, modern forms of communication
(specifically the internet) and the use of English as the common trade
language. It is a process driven mostly by economic and technological forces,
irrespective of any legal barriers that may exist.2
The way in which international markets have become integrated and mutu-
ally dependent in the last century and a half was dramatically demonstrated
first by the worldwide recession, caused by the protectionist trade measures of
the United States and the ensuing tariff war, during the early part of the twen-
tieth century,3 and more recently by the Asian financial crisis in 1997, which
caused not only severe economic turbulence in South-East Asia but a world-
wide economic slowdown,4 and the worldwide tremors sent through interna-
tional markets originating in the ongoing American sub-prime crisis and
recession of 2008.
The tardiness of the law to respond to the challenges posed by globaliza-
tion, by the needs of international trade and by the impact of information tech-
nology and the internet is mentioned quite often as one of the major stumbling
blocks in the path of greater globalization and international trade.5 The process
1 Backer (2007, p. xiii); Kenna (2008, p. 397) and Keenan (2008, pp. 342–3).
2 Dalhuisen (2000).
3 August (2004, pp. 353–4).
4 Karunatilleka (1999).
5 See for instance the General Assembly Resolution 35/51 at its 35th Plenary
97
of changing the law is notoriously slow in many respects, causing international

traders to simply accept the legal risks and uncertainties involved, rather than
lag behind in developing their international markets.
Unlike international trade, which barely knows any national borders these
days, law is still very much localized – there is as yet no over-arching inter-
national trade law or lex mercatoria6 that will generally apply to international
transactions.7 Every international trade transaction is still rooted in the domes-
tic law of a specific country to be appointed by the rules of private interna-
tional law.8 Domestic laws differ quite significantly, even on something as
basic as sales law. For instance, most civil law systems require a buyer to
inform the seller of any non-conformity of the goods within a fairly brief
period of time, after which the buyer may lose the remedies available for such
non-conformity. In systems based on the common law the duty to notify the
seller of deficient goods is much less clearly defined and usually it does not
lead to a loss of remedies, but the failure to give a timely notification merely
reflects on the probity of the buyer’s allegations of non-conformity.9 Such
differences may impact quite significantly on the conduct of the various
parties to a sales contract, depending on their understanding of the law.
Although parties in international trade transactions have the power to deter-
mine the contents of their contract, their rights and obligations largely
autonomously, they often fail to do so, concentrating only on the basic aspects
of their transaction such as price, quantity, quality and time and place of deliv-
ery. They very often fail to determine key issues such as the applicable legal
system and the courts that will have jurisdiction in the case of disputes
between them.10 This could render the contract and the respective rights and
Meeting on 4 December 1980 available at http://www.UNCITRAL.org/ UNCI-

TRAL/en/UNCITRAL_texts/sale_goods/1980CISG.html, accessed 5 June 2009;
Backer (2007, pp. xiii–xiv and 10–12).
6 Michaels (2007, pp. 447–8); Mazzacano (2006); Rodriguez (2002, p. 46) and
De Ly (2006, pp. 28–38).
7 Forsyth (2003, pp. 20–23); North and Fawcett (1992, pp. 3–5) and Michaels
(2007, p. 458).
8 For a brief comparative overview see Schwenzer (2005) Art 39 § 4, pp.
461–2; Eiselen and Kritzer (2008) § 89:64, pp. 89–136 and 89–137; Gruber (2008)
CISG Art 39 § 34, pp. 2292–3.
9 Schwenzer (2005) Art 39 § 4, pp. 461–2; Eiselen and Kritzer (2008) § 89:64,
pp. 89–136 and 89–137; Gruber (2008) CISG Art 39 § 34, pp. 2292–3.
10 See Forsyth (2003, pp. 303–4 and 307). South African case law such as
Improvair (Cape) (Pty) Ltd v Establissements Neu 1983 2 SA (C); Laconian Maritime
Enterprises Ltd v Agromar Lineas Ltd 1986 3 SA 509 (D) bears testimony to the fact
that international commercial contracts often fail to address the issue of the applicable
law. These examples can be multiplied many times over when international cases are
taken into consideration. See for instance the cases quoted in North and Fawcett (1992,
pp. 457–9 and 487–93).
Harmonization of international trade law 99
obligations of the parties subject to a great deal of legal uncertainty due to

divergences in different legal systems. These differences are not only found in
the substantive legal rules, but also in the national rules of jurisdiction that will
determine which courts could potentially exercise jurisdiction in the case of a
dispute11 and the rules of private international law that must determine which
legal system will determine the applicable substantive rules.12
Although there are quite a few voices that are sceptical about the need for
and value of the harmonization of international trade law,13 there is a very
strong movement in favour of developing harmonized laws in key areas.14
This belief that there is a need for harmonized law is nothing new. Towards the
end of the nineteenth century there was a strong yearning to hark back to the
good old days of the lex mercatoria that allegedly applied throughout the
market places in medieval Europe15 and a belief that a common law of
mankind needed to be developed.16 The need for a common harmonized law
that will apply irrespective of jurisdiction and free of domestic law is based on
the premise that the territorial nature of law, the divergent rules of private
international law and the vagaries of jurisdiction present obstacles and addi-
tional cost factors in international trade law which, if eliminated, will
contribute to greater legal certainty and cost effectiveness.17
The aim of this chapter is not to argue the case for legal harmonization
generally, as the advantages and disadvantages of that topic have been
discussed in detail elsewhere,18 but, on the assumption that the continued
harmonization of international trade law is necessary and will be beneficial for
international trade, to take stock of the existing harmonization efforts and
agencies with the object of determining critical factors for successful harmo-
nization. In this discussion it will become clear that state law and conventions
11 Forsyth (2003, pp. 158–9); Cameron (2001, pp. 1–17).

12 Forsyth (2003, pp. 2–3); North and Fawcett (1992, pp. 3–5).
13 Kötz (1986, p. 1); Rosett (1984, p. 265); Stephan (1999).
14 See for instance the General Assembly Resolution 35/51 at its 35th Plenary
Meeting on 4 December 1980, available at http://daccessdds.un.org/doc/
RESOLUTION/GEN/NR0/390/70/IMG/NR039070.pdf?OpenElement, accessed 5
June 2009; Backer (2007, pp. xiii–xiv and 10–12).
15 Michaels (2007, p. 447).
16 Zweigert and Kötz (1998, pp. 2–3).
17 See for instance General Assembly Resolution 35/51 at its 35th Plenary
Meeting on 4 December 1980, available at http://daccessdds.un.org/doc/
RESOLUTION/GEN/NR0/390/70/IMG/NR039070.pdf?OpenElement, accessed 5
June 2009. It is also a sentiment that is regularly repeated in the Preambles to UNCI-
TRAL instruments.
18 Kötz (1986, p. 1); Stephan (1999); Grossmann-Doerth (1930, p. 65); Goode
(1993, p. 1); Hobhouse (1990, p. 531); Evans (1994, p. 146); Wool (1997, p. 46); Rosett
(1992, pp. 683–4).
like the Vienna Convention for the International Sale of Goods, 1980 (CISG),
are not the only available instruments of trade law harmonization, but that
there are also soft law options such as the Incoterms of the International
Chamber of Commerce (ICC) or the Unidroit Principles of International
Commercial Contracts of Unidroit that can play a significant role in this
process. The various agents of harmonization such as the United Nations
Commission for International Trade Law (UNCITRAL), Unidroit, the
International Chamber of Commerce (ICC) and the World Customs
Organization will also be considered. In the evaluation of the different agents
of harmonization and their instruments, attention will further be given to the
extent that these instruments may be regarded as reflecting democratic values
in their drafting processes and application.
2 A BRIEF HISTORY OF TRADE LAW

HARMONIZATION: THE VIENNA CONVENTION FOR
THE INTERNATIONAL SALE OF GOODS, 1980 (CISG)
The rise of the modern sovereign state in Europe and its increased importance
since the sixteenth century19 led to the realization that modern law was terri-
torial in its nature, rooted in the sovereignty of a specific state.20 There were
no universally applicable legal systems, but rather laws or statutes were found
in individual sovereign states. Even at this early stage, improved forms of
transportation and communications and the advent of the industrial age were
the catalysts for increased international trade and early globalization.
This raised the question: which legal system should apply to an interna-
tional transaction where the parties had their places of business in different
states and where different aspects of the contract were performed in different
places?21 Different legal systems answered this question in different ways,
leading to legal uncertainty where these rules were not similar or where the
applicable substantive legal rules were not similar.22
One of the solutions proposed during the nineteenth century was the harmo-
nization or unification of law, along the lines of the earlier Roman Ius
19 Forsyth (2003, p. 38); North and Fawcett (1992, pp. 20–21).

20 For the first time jurists dealing with conflicts of laws problems were faced
with the question why a court of one sovereign state should apply the law of another
sovereign state. See the discussion of the comity theory in Forsyth (2003, pp. 38–41).
21 Forsyth (2003, pp. 37–41); North and Fawcett (1992, pp. 457–9).
22 Martiny (1996) § 2–25; North and Fawcett (1992, pp. 457–9); Forsyth (2003,
pp. 294–5).
Commune in Europe or the lex mercatoria of the Middle Ages.23 The early
attempts at harmonization or unification of international private law towards
the end of the nineteenth century (referring back to the lex mercatoria) were
far too ambitious in their scope.24 As a result these attempts had no immedi-
ate impact or success other than to raise awareness of the problems caused for
international trade by the rise of the modern state and its exclusive territorial
domestic laws. Even in states within close proximity to each other and with a
common legal heritage founded on classical Roman law like the European
states, a great deal of legal diversity developed quite quickly, with some states
basing their civil codes on the French model while others chose the German
example.25 Similarly, the contract codes and trade laws existing in the various
American states diversified over time, finally necessitating the drafting of the
Uniform Commercial Code (UCC), which has now been adopted in most
states, as a harmonizing instrument of trade law.26
On the international level, the first serious attempt at harmonizing aspects
of international trade law started with the founding of Unidroit as an auxiliary
organ by the League of Nations in 1926.27 Their first project started in 1929
under the leadership of Cecil Hurst and Ernst Rabel and consisted of the draft-
ing of an international sales code.28 A draft was finally presented by the draft-
ing committee in 1935, but the fate of that document was initially sealed by
the growing tensions in Europe and finally World War II.29 This draft was only
revived again in 1951 at an international conference in The Hague in the
Netherlands. A new commission was appointed to rework the original Rabel
draft and a draft text was presented to the Hague Conference in 1958.30
Further work led to two draft instruments, namely the Uniform Law of
International Sales (ULIS) and the Uniform Law on the Formation of
Contracts for the International Sale of Goods (ULF) under the auspices of the
23 For a discussion on the ancient and modern lex mercatoria see Michaels
(2007, pp. 447 ff.); Mendes (1988, pp. 109–44); Blasé (1999, p. 3); Mazzacano (2006).
24 Kötz (1986, pp. 1–2); Michaels (2007, p. 447); Oly (1982, pp. 29–33).
25 Zweigert and Kötz (1998, pp. 51 and 54–5).
26 For a history and justification of the UCC see Corbin (1950, pp. 821–36);
Braucher (1958, pp. 798–812); Kamp (1949, pp. 359–476).
27 For a brief history of Unidroit see http://www.unidroit.org/dynasite.
cfm?dsmid=84219, accessed 5 June 2009. Unidroit is still in existence today as an
organization founded by a multilateral convention, the Unidroit Statute of 1940.
28 Bianca and Bonell (1987, p. 3); Magnus (2005) Einl. zum CISG § 20;
Schlechtriem (2005, p. 1).
29 Bianca and Bonell (1987, pp. 3–4); Magnus (2005) Einl. zum CISG § 20.
30 Bianca and Bonell (1987, p. 4); Magnus (2005) Einl. zum CISG § 21;
newly formed Unidroit, being presented to the Hague Conference of 1964,

where both were adopted.31
Although these conventions were generally regarded as a failure because of
the lack of international acceptance, they did form an important stepping-stone
for the eventual development of the CISG in 1980.32 The Hague Conventions
were only adopted by 11 countries, of which 9 were European.33 The main
reason for the low level of acceptance of these instruments was the fact that
they were perceived to be too Eurocentric due to a lack of participation in the
drafting process by socialist and developing countries.34 These countries were
of the opinion that the conventions failed to address their interests adequately
and tended to favour the seller rather than the buyer.35 However, valuable
experience was gained in the application and operation of these conventions in
the countries where they did apply.36 It is therefore not surprising that they
formed the point of departure for the drafting of what would eventually
become the CISG.37
In 1966 the United Nations General Assembly recognized that disparities in
national laws governing international trade created obstacles to the flow of
trade.38 It established the UN Commission on International Trade Law (UNCI-
TRAL)39 with the mandate to further the progressive harmonization and unifi-
cation of the law of international trade. UNCITRAL consists of 60 members
appointed by the General Assembly so as to be representative of the world’s
various geographic regions and its principal economic and legal systems. A
survey amongst members showed that most members were interested in the
harmonization of international sales laws.40 UNCITRAL appointed a drafting
team consisting of 15 members who were representative of all regions and
economic interest groups of the world. Using the two Hague Conventions
(ULIS and ULF) as the basis, the drafting team presented two texts which
31 Bianca and Bonell (1987, p. 4); Magnus (2005) Einl. zum CISG § 22.
32 Bianca and Bonell (1987, pp. 4–5); Magnus (2005) Einl. zum CISG § 23;
33 Honnold (1999, p. 4); Bianca and Bonell (1987, pp. 4–5). Ironically the
United Kingdom was one of the countries that acceded to the conventions, but it was
done in such a manner that they never became operative in that country. To date the
United Kingdom has also not acceded to the CISG, despite its participation in the draft-
ing process in UNCITRAL.
34 Honnold (1999, p. 9); Magnus (2005) Einl. zum CISG § 24.
35 Magnus (2005) Einl. zum CISG § 24.
36 Schlechtriem (2005, pp. 1–2).
37 Schlechtriem (2005, p. 2); Magnus (2005) Einl. zum CISG § 24.
38 Resolution 2205(XXI) of 17 December 1966.
39 Resolution 2205(XXI) of 17 December 1966. On UNCITRAL see generally
http://www.UNCITRAL.org, accessed 5 June 2009.
were eventually adopted by UNCITRAL in 1978 as a single draft conven-

tion.41
The UNCITRAL text was discussed at a diplomatic conference in Vienna
in 1980 where 62 countries were represented. After more than a month of
discussion and redrafting, a final text was adopted as the Vienna Convention
for the International Sale of Goods on 11 April 1980 (CISG).42 However, the
CISG did not enter into force until 1 January 1988 after 11 states adopted the
convention, the final two states quite fittingly being the United States and the
People’s Republic of China.43 After an initial spate of adoptions following on
the accession of the United States and China, there has been a steady trickle of
adoptions, with the tally now standing at 74 member countries.44 Despite a
number of notable exceptions like the United Kingdom, India, Portugal,
Brazil45 and South Africa, the Member States today represent about 80 per
cent of world trade, making the CISG one of the most important harmonizing
international trade instruments today.
The CISG is generally regarded as a great success story in the harmoniza-
tion of international trade, despite initial fears that it would be generally
excluded by traders and that its impact would be minimal.46 Although there
was an initial trend for businesses to exclude the application of the CISG in
their standard terms and conditions,47 the practice certainly has never been
universal and it is also changing as a newer generation of lawyers who are
acquainted with the CISG enter into practice.48
41 Honnold (1999, pp. 8–10); Bianca and Bonell (1987, pp. 5–6).
42 Bianca and Bonell (1987, pp. 5–6); Magnus (2005) Einl. zum CISG § 26.
44 An up-to-date statement of the status of the CISG can be found at
http://www.UNCITRAL.org/UNCITRAL/en/UNCITRAL_texts/sale_goods/
1980CISG.html, accessed 5 June 2009.
45 There are indications that Brazil will soon adopt the CISG, following on the
recent accession by Japan.
46 Schlechtriem (2005, p. 1); Eiselen and Kritzer (2008, pp. 80–85) § 80:1;
Lookofsky (1993, p. 18); New Zealand Law Commission (1992, p. 10).
47 Holdsworth (2001); Eiselen and Kritzer (2008) § 84–49.
48 This is a trend that is apparent from for example an analysis of Chinese arbi-
tration cases where parties have been expressly opting into the CISG. See for instance
China 10 August 1999 CIETAC Arbitration proceeding (Raincoat case)
http://cisgw3.law.pace.edu/cases/990810c1.html, accessed 5 June 2009; China 26 June
2003 CIETAC Arbitration proceeding (Alumina case) http://cisgw3.law.pace.edu/
cases/030626c1.html, accessed 5 June 2009; China 18 December 2003 CIETAC
Arbitration proceeding (AOE and PECVD machines case) http://cisgw3.law.pace.edu/
cases/031218c1.html, accessed 5 June 2009; China 14 December 2004 Xiamen
Intermediate People’s Court [District Court] of Fujian Province (Xiamen Xiang Yu
Group Corporation v Mechel Trading AG) http://cisgw3.law.pace.edu/cases/
The success of the CISG can be attributed to a number of factors, some

pertaining to the drafting process and some due to subsequent developments.
During the drafting process of the CISG the concerns of socialist and devel-
oping countries were taken into account adequately as there was sufficient
participation by these countries. The drafters of the CISG consciously avoided
using terminology that could bring with it unintended baggage originating
from a specific legal system or culture and instead used terminology that
would bridge the gap between the civil and common law traditions. Whereas
domestic sales laws developed with domestic sales as their matrix, the drafters
of the CISG aimed at taking the requirements and conditions of international
sales into consideration. They also aimed at creating an equitable balance
between the interests of the seller and those of the buyer, unlike in many
domestic sales laws where the interests of either the seller or the buyer are
more dominant.
There are six official versions of the CISG and many other unofficial trans-
lations, but English has become the dominant language for the discussion and
interpretation of the CISG. At the outset there were predictions that the harmo-
nization would be more apparent than real because of the fact that the CISG
would not be applied in a uniform manner after integration into the various
Member States.49
Rosett voiced the fear that one of the biggest stumbling blocks on the path
of harmonization would be deviating interpretations and applications of the
CISG or a so-called homeward trend by courts in different jurisdictions.50 It
is, of course, of little value to have a uniform or harmonized instrument if there
is significant divergence in the way it is interpreted or applied, or if courts
interpret and augment it under the influence of their own legal system.51
UNCITRAL and several commentators took this danger to heart and from
an early stage have collected, collated, and published cases from all over the
world.52 The UNILEX Database compiled by Bonell was one of the first
comprehensive collections and is still being kept current.53 To date it contains
041214c1.html, accessed 5 June 2009; China 23 September 2005 New Pudong District
People’s Court [District Court] of Shanghai (Xi’an Yun Chang Trade Ltd. v An Tai
International (USA)) http://cisgw3.law.pace.edu/cases/050923c1.html, accessed 5 June
2009. See also the recommendation by Magnus (2005) Art 5 §§ 73–74.
49 Rosett (1984, p. 265); Rosett (1988, p. 587). Also see Kötz (1986, pp. 9–10);
Ferrari (1994, pp. 183 ff.); Kramer (1996, pp. 137 ff.).
50 Rosett (1984, p. 269). See also Van Alstine (1998, pp. 687–793); Andersen
(1998, pp. 403–10); Ferrari (1994, pp. 183–228); Ferrari (1999, pp. 245–61).
51 Ferrari (2001, pp. 225–39); Bazinas (2006, pp. 18–27).
52 Will (1995); Bonell (1995).
53 It was originally published as a hard copy loose-leaf publication but is
currently published on Unidroit’s website at http://www.unilex.info/dynasite.
cfm?dssid=2375&dsmid=14276, accessed 5 June 2009.
almost 800 cases. The UNCITRAL website also contains a current list of cases
that is updated regularly. To date it contains more than 600 cases. In addition, it
contains a Case Digest that provides guidance through the large body of case
law.54
The most comprehensive and ambitious collection of case law is to be found
on the award-winning website of the Pace Law School’s Institute of
International Commercial Law.55 This website contains the full text of more than
2000 cases and arbitral awards from all parts of the world. It is easy to use and
accessible, with each case classified according to the CISG article to which it
relates. Most cases are also available in English, either as the original language
or in translation.56 This is the premier site for any researcher on the CISG,
because it also contains a comprehensive bibliography of literature on the CISG,
including more than 1200 texts available in full.57
In addition to these websites, there are several authoritative commentaries
available on the CISG. The one by Schlechtriem and Schwenzer58 is one of the
most comprehensive and best available in English, while the introduction by
Lookofsky59 provides an excellent introductory text for anyone new to this field.
The result has been that there is a wealth of accessible material, case law as
well as scholarly commentary, available on the interpretation and application of
the convention. Most of it is easily accessible on the Internet, and one would
expect practitioners and courts to rely on this material when dealing with the
CISG.
The fear that there would be widely disparate interpretations and applica-
tion of the CISG has therefore not proved to be a widespread problem.60
Although there were quite a few cases initially where the so-called homeward
trend in the interpretation of the CISG was apparent,61 this is also changing,
with courts worldwide using international case law and academic commentary
rather than relying on domestic solutions.62 By and large the uniform inter-
pretation and application of the CISG have been kept intact.
54 Lookofsky (2004, pp. 181–95).

55 See Pace Law School ‘CISG Database’, accessible online at
http://www.cisg.law.pace.edu, accessed 5 June 2009.
56 See http://www.cisg.law.pace.edu/cisg/text/queenmary.html, accessed 5 June
2009, for details of the translation programme of the Queen Mary University, London.
57 Available at http://www.cisg.law.pace.edu, accessed 5 June 2009.
58 Schlechtriem and Schwenzer (2005). See also Honnold (1999); Eiselen and
Kritzer (2008).
59 Lookofsky (2008). See also Huber and Mullis (2007); Schwenzer and
Fountoulakis (2007).
60 Magnus (2009, p. 38).
61 For examples see Ferrari (2009, pp. 185 ff.).
62 Magnus (2009, p. 38). The decisions in Italy 25 February 2004 Tribunale
Where the CISG has been adopted by a country, it becomes applicable to

all international sales and displaces the domestic sales law, unless the parties
have chosen another legal system where the CISG does not apply or have
expressly excluded the application of the CISG.63 Practically speaking, the
CISG therefore exists as a parallel sales law to domestic sales law in all
member countries. An international sale is defined as any sale where the
parties have their places of business in different states.64 The CISG applies
autonomously where both parties have their places of business in contracting
states, or alternatively where the rules of private international law determine
that the law of a contracting state is the governing law.65
As is evident from the number of reported cases,66 the CISG is applicable
to a great number of international sales transactions and is becoming even
more entrenched as the newer generation of lawyers use it as a useful instru-
ment in international trade, rather than fearing it as an unknown body of law
that needs to be excluded. There is a wealth of case law and academic
commentary available today, contributing to the growing importance of the
CISG as a harmonizing instrument.67
The experience with the CISG has shown that legal harmonization can be
a long and cumbersome process, even in areas where there is a big need for
such harmonization, but that it can be successfully implemented if the area of
law targeted is well chosen and limited and not over-ambitious. However,
more recent projects of UNCITRAL, as discussed below, show that the draft-
ing and implementation process can be sped up considerably.
3 DIFFERENT METHODS OF ACHIEVING

HARMONIZATION
3.1 Introduction
The different methods currently employed to achieve legal harmonization of

international trade law are closely linked to the agents or organizations
[District Court] Padova http://cisgw3.law.pace.edu/cases/040225i3.html, accessed 5

June 2009 and Italy 11 December 2008 Tribunale di Forli [District Court] (Mitias v
Solidea S.r.l.) http://cisgw3.law.pace.edu/cases/081211i3.html accessed 5 June 2009
provide a excellent examples.
63 Schlechtriem (2005) Art 6 §§ 2–3; Magnus (2005) Art 6 §§ 8–9.
64 Art 1.
65 Art 1.
66 On the Pace Institute for International Commercial Law website there are
more than 2,000 reported cases and the number grows almost daily.
67 Magnus (2009, pp. 38–9).
promoting harmonization. The CISG provides an excellent example of formal

legal harmonization, that is, UNCITRAL using an internationally binding
convention as the method for achieving unification or harmonization. The use
of conventions is the most obvious instrument or method for achieving such
harmonization, but it is by no means the only method available, nor necessar-
ily the most effective method.68
There are a variety of alternative methods that have been employed by vari-
ous agents of harmonization and have been equally effective and successful.
These methods rely on soft law instruments which may be adopted on a volun-
tary basis by countries worldwide or by the participants in international trade
themselves, rather than formal binding conventions. The UNCITRAL Model
Laws on electronic trade provide such examples, drafted by a United Nations
Agency in which there is formal state participation. The Incoterms and the
Uniform Customs and Procedures for International Documentary Payments of
the International Chamber of Commerce, which can be adopted by the parties
themselves, rather than by countries, provide further examples of soft law
instruments, but in this case drafted by a private international organization.
These and other similar instruments will be assessed in more detail below,
along with the organizations which have been responsible for these instru-
ments, in order to establish how these norms are created, how democratic they
are, how they function in practice, how successful they have been in harmo-
nizing the law and how their enforceability or effectiveness is assured.
3.2 Instruments Employed to Achieve Harmonization
3.2.1 Formal instruments – conventions69

The first and most obvious method for legal harmonization in any field
consists of formal legally binding instruments such as international conven-
tions. Conventions are created in terms of binding public international
norms.70 They are entered into voluntarily by the governments of the various
states that decide to become members of such conventions.
68 Goode (1993, pp. 6–9); Rosett (1992, pp. 683–97); Bonell (1994, pp. 1–6);
Bonell (1996, p. 29); David (1971, Ch. 5); Kötz (1986, pp. 1 ff.); Hobhouse (1990, p.
531); Mertens (1957, p. 657).
69 In public international law the term treaty or convention is used in the alter-
native to refer to ‘a written agreement between states or states and international orga-
nizations operating in the field of public international law’ – see Dugard (2000, p. 26).
The convention forming the modern basis for the law of treaties is curiously named the
Vienna Convention on the Law of Treaties, 1969.
70 Vienna Convention on the Law of Treaties 1969 Art 2; Dugard (2000, pp.
26–7).
Depending on the constitutional dispensation of individual countries, such

conventions become part of the domestic law of a member country, either
through executive action, that is, where the government signs a convention, or
through legislative action, that is, where the convention is ratified by the
legislative power of a state.71 The rules that determine the capacity of states
and organizations to enter into conventions, the procedures to enter into
conventions, the interpretation of conventions and the termination of conven-
tions are found largely in the 1969 Vienna Convention on the Law of Treaties.
In the field of international trade law harmonization, multilateral treaties, that
is, treaties that have more than two members and are open to ratification by
any other state in accordance with the provisions of that treaty, play the most
significant role. Such multilateral treaties are open-ended and can be adopted
at any time by new members.
Today, a multilateral convention will usually come into existence in one of
two ways: it is either drafted by an international convention of states and then
adopted at the final meeting of that diplomatic conference, or it is drafted by
a representative agency of the United Nations, such as UNCITRAL, and then
adopted by the General Assembly of the United Nations. In either case, such
multilateral conventions will not enter into force until such time as a sufficient
number of states as determined in the convention itself have signed and rati-
fied the convention.
The biggest advantage of harmonization by convention is the fact that such
a convention will become binding law in all the states that have ratified that
convention. In this manner the CISG has become the binding international
sales law in 74 states, displacing the rules of the domestic sales laws applica-
ble to international sales in those countries. By using conventions a high
degree of uniformity or harmonization can formally be established, although
achieving uniformity practically in the interpretation and application of the
convention may be more difficult. Furthermore, the more countries that accede
to such a convention, the larger the potential degree of harmonization may be,
as all such countries will have the same text as a point of departure.
As discussed above, opponents of legal harmonization efforts claim that
the apparent harmonization achieved by the convention may soon disappear
due to the different interpretations given to the convention and the manner
in which it is applied by national courts. The CISG probably provides the
best empirical evidence on the accuracy of this claim and the reality of this
fear. The so-called ‘homeward trend’ in the interpretation and application of
a convention constitutes a real danger that may shatter the apparent
71 Vienna Convention on the Law of Treaties 1969 Art 11; Dugard (2000, pp.
47–50; 54–8).
harmony.72 This danger is somewhat countered by the fact that in the interpre-
tation of a convention courts and tribunals are entitled to take note of the legisla-
tive history of the convention and its provisions.73 The CISG, as is the case with
most subsequent UNCITRAL conventions, contains an article on interpretation
which is aimed at countering the homeward trend. Article 7 states:
(1) In the interpretation of this Convention, regard is to be had to its international

character and to the need to promote uniformity in its application and the obser-
vance of good faith in international trade.
Experience with the CISG has shown that there has been a homeward trend in
some decisions74 and a divergence in the results of the application of some of
the provisions. On the whole, however, the integrity and harmonization effect
of the CISG have been preserved.75 There is also a growing trend in courts
worldwide to refer not only to domestic decisions and writings but also to
international decisions and literature.76 The leading commentaries on the
72 Ferrari (2009, pp. 171–7).

73 Magnus (2009, pp. 49–50). Despite the differences in interpretational method-
ology between civil and common law, common law courts have successfully employed
a more international approach to the interpretation of conventions as is evident from for
instance the decision in England James Buchanan & Co Ltd v Babco Forwarding and
Shipping (UK) Ltd [1977] 3 All ER 1048 at 1052. See also England Fothergill v
Monarch Airlines Ltd [1980] 2 All ER 696; Eiselen (2009, pp. 77–9).
74 See for instance the decisions in United States Delchi Carrier SpA v Rotorex
Corp., 71 F.3d 1024, 1028 (2d Cir. 1995); United States MCC-Marble Ceramic Center,
Inc., v Ceramica Nuova d’Agostino, S.p.A., 144 F.3d 1384, 1388–9 (11th Cir. 1998);
Germany 9 January 2002 Bundesgerichtshof [Federal Supreme Court] (Powdered milk
case) http://cisgw3.law.pace.edu/cases/020109g1.html, accessed 5 June 2009.
75 Magnus (2009, p. 38); Eiselen and Kritzer (2008) § 85:9.
76 See for instance United States Medical Marketing International, Inc., v
Internazionale Medico Scientifica, S.R.L., 99-0380, 1999 U.S. Dist. LEXIS 7380, at
(E.D. La. May 17, 1999), available at http://cisgw3.law.pace.edu/cases/990517u1.html,
accessed 5 June 2009; Italy 12 July 2000 Tribunale [District Court] Vigevano
(Rheinland Versicherungen v Atlarex) http://cisgw3.law.pace.edu/cases/000712i3.
html, accessed 5 June 2009. For other examples see also Italy 25 February 2004
Tribunale [District Court] Padova http://cisgw3.law.pace.edu/cases/ 040225i3.html,
accessed 5 June 2009; Italy 11 December 2008 Tribunale di Forli [District Court]
(Mitias v Solidea S.r.l.) http://cisgw3.law.pace.edu/cases/ 081211i3.html, accessed 5
June 2009; Germany 8 January 2004 Landgericht [District Court] Trier http://cisgw3.
law.pace.edu/cases/040108g1.html, accessed 5 June 2009; Austria 13 April 2000
Oberster Gerichtshof [Supreme Court] http://cisgw3.law.pace.edu/cases/000413a3.
html, accessed 5 June 2009; Australia 24 October 2008 Federal Court [South Australia
District] (Hannaford v Australian Farmlink Pty Ltd) http://cisgw3.law.pace.edu/cases/
081024a2.html, accessed 5 June 2009. See also DiMatteo et al. (2004) at n. 590;
Magnus (2009, p. 38).
CISG all refer to a variety of cases from different jurisdictions as well as

scholarly materials from all over the world.
Opponents of harmonization also refer to the danger that conventions, espe-
cially successful ones with many members, can become a static monument
which may become out of touch with the needs of a fast-changing world.77
The best example of a convention that has fallen victim to this danger is the
1929 Warsaw Convention,78 dealing with the rules on carriage by air. The
convention was drafted at a time when carriage by air was still in its infancy
and therefore many of its provisions have become outdated and problematic.
However, despite serious attempts to modify the convention, it has proved
almost impossible to do so as it requires the consent of all members of the
convention. Whether this poses a substantial problem or not also depends on
the type of convention.79 With a convention like the CISG the danger of the
convention becoming outdated is small and it is further countered by the
underlying principle of party autonomy, which allows individual parties to
change or modify any of the provisions of the convention to suit their partic-
ular needs. There is for instance general consensus amongst commentators that
the provisions of the CISG can adequately deal with the challenges presented
by electronic commerce, despite the fact that this phenomenon did not exist at
the time the convention was drafted.80
The question of how democratic a particular convention is must be
answered at two levels. At the international level it will depend on the partic-
ipation of states and the transparency and inclusiveness of the drafting process.
Where a convention lacks proper participation or inclusiveness it is likely to
fail, as was the case with the two 1964 Hague Sales Conventions. Where there
is proper participation and transparency, it has a much better chance to
succeed, as is the case with the CISG and the 1958 Convention on the
Recognition and Enforcement of Foreign Arbitral Awards. In any event, no
state can be forced into entering into a convention.
77 For a full discussion of the various points of criticism on legal harmonization

see Rosett (1984, p. 269); Rosett (1992, pp. 683–97); Stephan (1999); Garro (1989, p.
450); Eörsi (1983, pp. 345–52); Zwart (1988, pp. 109 ff.); Lehmann (2006, pp.
317–28); Eiselen (1999, pp. 323–70); Eiselen (2007, pp. 14–24).
78 Convention for the Unification of Certain Rules Relating to International
Carriage by Air, Signed at Warsaw on 12 October 1929. It has 150 members. See also
Stephan (1999).
79 Although 4 amendments have been made to the convention, the most impor-
tant amendment, contained in the Montreal Protocol of 1975, has not yet entered into
force due to a lack of ratifications. See August (2004, pp. 641–3).
80 See Ramberg (2003); Schlechtriem (2005) 13 § 2a; Schwenzer and Mohs
(2006, p. 239); Ferrari (2002, pp. 289–304); Eiselen (2002, pp. 305–18).
On the domestic level the question of whether the instrument passes the test
of being democratic is more complicated. It depends firstly on the democratic
nature of the particular state itself. If it is a non-democratic state, ratification
of a convention can hardly be described as democratic. If a democratic state is
involved, the accession to the convention either by the executive or the legis-
lature can only be regarded as an indirect democratic process because the
convention is presented as a complete package, to be accepted or rejected as a
whole.
3.2.2 Soft law instruments – model laws or model codes open for
adoption by countries
A second type of instrument that has become more popular in the effort to
harmonize international commercial law is the model law or model code. The
object of such a model law or code is to indirectly harmonize the law in a
particular area by providing a standard text which can be adopted or modified
by individual countries as part of their domestic law. For instance, in the
Preamble to the 1985 UNCITRAL Model Law on International Commercial
Arbitration, the General Assembly states:
Convinced that the Model Law, together with the Convention on the Recognition
and Enforcement of Foreign Arbitral Awards and the Arbitration Rules of the United
Nations Commission on International Trade Law recommended by the General
Assembly in its resolution 31/98 of 15 December 1976, significantly contributes to
the establishment of a unified legal framework for the fair and efficient settlement
of disputes arising in international commercial relations, …
The Commentary by the Secretariat to the Model Law states:
2. The Model Law constitutes a sound basis for the desired harmonization and
improvement of national laws. It covers all stages of the arbitral process from the
arbitration agreement to the recognition and enforcement of the arbitral award and
reflects a worldwide consensus on the principles and important issues of interna-
tional arbitration practice. It is acceptable to States of all regions and the different
legal or economic systems of the world. Since its adoption by UNCITRAL, the
Model Law has come to represent the accepted international legislative standard for
a modern arbitration law and a significant number of jurisdictions have enacted
arbitration legislation based on the Model Law.81
81 This assessment is substantiated by the fact that the Model Law has been used
by the following countries in enacting their arbitration laws: Armenia (2006), Australia
(1991), Austria (2005), Azerbaijan (1999), Bahrain (1994), Bangladesh (2001), Belarus
(1999), Bulgaria (2002), Cambodia (2006), Canada (1986), Chile (2004), in China:
Hong Kong Special Administrative Region (1996), Macau Special Administrative
Region (1998); Croatia (2001), Cyprus, Denmark (2005), Dominican Republic (2008),
The advantage of a model law as a means of harmonization is that it

provides a more flexible approach to the process of harmonization because
states can adopt the model law as the basis for their own legislation, but they
are not bound to the specific provisions. It can be adapted to make provision
for the needs, requirements and quirks of the particular domestic legal system.
This advantage also presents the greatest danger to the harmonization process
because there is no guarantee that countries adopting or using the model law
will draft a final instrument that incorporates all of the underlying principles
of that model law.
The experience with, for instance, the 1996 Model Law on Electronic
Commerce shows, however, that the eventual enactments in the various coun-
tries using the model law are remarkably similar, although they may contain
some differences to provide for domestic requirements.82 There are some
jurisdictions, though, where the Model Law can only be said to have influ-
enced the domestic legislation, without being followed closely.83 In these
instances the level of harmonization can only be described as low.
The implementation of model laws takes place at the state level, that is, the
legislature of a particular state will use the model law in the drafting of its own
legislation. Whether the model law can be regarded as democratic or not will
depend on the level of participation in the initial drafting stages, but ultimately
on the democratic nature of the state where it is being implemented itself.
Unlike conventions, the model laws are not presented on a take-it-or-leave-it
basis, but simply as a suggested text that may be freely amended by legisla-
tures. The question of their democratic nature is therefore not likely to arise
very readily.
Egypt (1996), Estonia (2006), Germany (1998), Greece (1999), Guatemala (1995),
Hungary (1994), India (1996), Iran (Islamic Republic of) (1997), Ireland (1998), Japan
(2003), Jordan (2001), Kenya (1995), Lithuania (1996), the former Yugoslav Republic
of Macedonia (2006), Madagascar (1998), Malta (1995), Mexico (1993), New Zealand
(1996), Nicaragua (2005), Nigeria (1990), Norway (2004), Oman (1997), Paraguay
(2002), Peru (1996), the Philippines (2004), Poland (2005), Republic of Korea (1999),
Russian Federation (1993), Serbia (2006), Singapore (2001), Spain (2003), Sri Lanka
(1995), Thailand (2002), Tunisia (1993), Turkey (2001), Ukraine (1994), within the
United Kingdom of Great Britain and Northern Ireland: Scotland (1990); in Bermuda,
overseas territory of the United Kingdom of Great Britain and Northern Ireland; within
the United States of America: California (1996), Connecticut (2000), Illinois (1998),
Louisiana, Oregon and Texas; Uganda (2000), Venezuela (1998), Zambia (2000) and
Zimbabwe (1996).
82 The South African Electronic Communications and Transactions Act Chapter
III and the Australian Electronic Transactions Act 162 of 1999 follow the Model Law
fairly closely. Nevertheless the Model Law has been followed quite closely in the legis-
lation based on it in 27 countries.
83 The legislation adopted in Canada and the United States differs quite
markedly from the Model Law and can only be said to have been influenced by it.
3.2.3 Soft law instruments – voluntary codes open for adoption by

individual commercial parties
Voluntary codes that have been developed by industry organizations like the
ICC constitute a third important type of instrument used for purposes of legal
harmonization. The individual commercial parties can adopt these codes,
usually by referring to them or incorporating them into their agreements. The
rules of the code are then regarded and applied as part of the individual agree-
ment between the parties. Where such a code is well known or widely adopted
in trade relationships or a particular industry, parties will in time develop
confidence in the certainty that such codes provide. Because these codes are
not binding, they will only be adopted in practice if they are regarded as sound
and persuasive.84 The ICC’s Incoterms and Uniform Customs and Procedures
for Documentary Credits, which are discussed in more detail below, are two
excellent examples of such codes. Unidroit’s Principles of International
Commercial Contracts, which are also discussed below, are a further important
example.
These codes are usually relatively easy to update and change to provide for
new developments, as they are not subject to the same constraints that apply
to conventions. This is evident from the ease and regularity with which the
ICC’s Incoterms and Uniform Customs and Procedures for Documentary
Credits have been amended, the former seven times since 1936 and the latter
five times since 1933.85 Even Unidroit’s Principles of International
Commercial Contracts have been modified once since their recent inception in
1994.86
The question of how democratic these instruments are is less important than
is the case with conventions, because these codes are open to voluntary accep-
tance by private parties. No party can be forced by the originators of the codes
to adopt or use them, although market pressures may leave participants in
particular markets with little choice other than to adopt them. In the case of
documentary credits very few banks worldwide will accept such payment
instruments unless they are subject to the UCP 600 rules.87 It would, however,
seem that such instruments are created largely by bodies which have a very
wide representation of stakeholders and after thorough consultative processes,
rendering the eventual instruments democratic.
84 Bonell (2006, p. xv).

85 August (2004, pp. 593–4; 676).
86 Bonell (2006, p. xi).
87 August (2004, p. 676); D’Arcy et al. (2000, pp. 167–8).
3.3 Agents and their Methods of Harmonization
In the discussion of the historical development of international trade law

harmonization above, the nature and work of UNCITRAL in developing the
CISG was discussed in detail. UNCITRAL, however, is not the only body
which has been active in this field. Other intergovernmental bodies that are
active in this field include the World Customs Organization, Unidroit and the
World Trade Organization (WTO). There are also private organizations such
as the ICC which have been very active in this field. The following provides a
brief description of these important agents of international trade harmoniza-
tion and the instruments they have used to achieve their aims. The role and
instruments of the World Trade Organization will not be discussed as that body
is primarily concerned with the facilitation of international trade by means of
regulating intergovernmental relations and conduct.88 That subject falls
outside the scope of this discussion which is focused on the harmonization of
commercial law and related matters.89
3.3.1 UNCITRAL
UNCITRAL was established in 1966 by the General Assembly of the United
Nations with the express object of promoting international trade harmoniza-
tion.90 Resolution 2205 (XXI) of 17 December 1966, establishing UNCI-
TRAL, states in its Preamble:
The General Assembly …

Reaffirming its conviction that divergencies arising from the laws of different States
in matters relating to international trade constitute one of the obstacles to the devel-
opment of world trade;
Having noted with appreciation the efforts made by intergovernmental organiza-
tions and non-governmental organizations towards the progressive harmonization
and unification of the law of international trade by the adoption of international
conventions, uniform laws, standard contract provisions, general conditions of sale,
standard trade terms and other measures,
88 August (2004, pp. 358–60). See also the website of the WTO at
http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm, accessed 5 June
2009.
89 The work of the World Customs Organization is included here because
customs valuation and duties form an integral part of the individual trade negotiations
and agreements. In that sense it is a commercially related matter, although strictly
speaking it falls within the scope of public law.
90 http://www.UNCITRAL.org/UNCITRAL/en/about/origin.html, accessed 5
June 2009.
Noting at the same time that progress in this area has not been commensurate with
the importance and urgency of the problem, owing to a number of factors, in partic-
ular insufficient co-ordination and co-operation between the organizations
concerned, their limited membership or authority and the small degree of participa-
tion in this field on the part of many developing countries,
Considering it desirable that the process of harmonization and unification of the law
of international trade should be substantially co-ordinated, systematized, and accel-
erated and that a broader participation should be secured in furthering progress in
this area, …
Decides to establish a United Nations Commission on international trade law (here-
inafter referred to as the Commission), which shall have for its object the promo-
tion of the progressive harmonization and unification of the law of international
trade in accordance with the provisions set forth in section II below.
UNCITRAL is composed of 60 Member States, structured so as to be repre-

sentative of the world’s various geographic regions and its principal economic
and legal systems.91 Members of the Commission are elected for terms of six
years. The Commission carries out its work at annual sessions, which are held
in alternate years at the United Nations Headquarters in New York and at the
International Centre in Vienna. Each working group of the Commission typi-
cally holds one or two sessions a year, depending on the subject-matter to be
covered; these sessions also alternate between New York and Vienna. In addi-
tion to Member States, all States that are not members of the Commission, as
well as interested international organizations, are invited to attend sessions of
the Commission and of its working groups as observers.92 Observers are
permitted to participate in discussions at sessions of the Commission and its
working groups to the same extent as members, but have no voting rights. The
ICC, for instance, has been a long-standing observer participating in
UNCITRAL’s work.93
UNCITRAL currently has six working groups that perform the substantive
preparatory work on topics within the Commission’s programme of work.
Each of the working groups is composed of representatives of all Member
States of the Commission. These groups currently deal with the following
topics: international procurement, international arbitration and conciliation,
transport law, electronic commerce, insolvency law and security interests.94
91 http://www.UNCITRAL.org/UNCITRAL/en/about/origin.html, accessed 5
June 2009.
92 http://www.UNCITRAL.org/UNCITRAL/en/about/methods.html, accessed 5
June 2009.
93 http://www.iccwbo.org/id93/index.html, accessed 5 June 2009.
94 http://www.UNCITRAL.org/UNCITRAL/en/about/methods.html, accessed 5
June 2009.
These subjects are regarded by UNCITRAL as the most important current

topics in need of harmonization.
UNCITRAL has made use of mainly two types of harmonization methods
in carrying out its tasks, namely drafting international conventions and draft-
ing model laws. In addition, it has also drafted a set of arbitration rules that can
be incorporated voluntarily by contract parties or agreed to when a dispute
arises.
The following are a selection of texts apart from the CISG that have been
drafted by it and accepted in international conventions or by the General
Assembly:
• 1976 UNCITRAL Arbitration Rules, which may be used by private

parties when resolving disputes by arbitration. The Rules have proved
to be successful in a highly competitive market where they must
compete with the arbitration rules of other established commercial arbi-
tration bodies.95 Schmitthoff describes them as almost indispensable in
ad hoc arbitration.96
• 1980 UNCITRAL Conciliation Rules, which may be used by private
parties when resolving disputes by conciliation.
• 1978 United Nations Convention on the Carriage of Goods by Sea – the
‘Hamburg Rules’.97 The Hamburg Rules were designed to replace the
Hague-Visby Rules,98 but have been only moderately successful with
34 parties, whereas the Hague-Visby Rules still enjoy more support
worldwide.
• 1985 UNCITRAL Model Law on International Commercial Arbitration,
with amendments as adopted in 2006.99
• 1988 United Nations Convention on International Bills of Exchange and
International Promissory Notes.100
• 1994 UNCITRAL Model Law on Procurement of Goods, Construction
and Services, with Guide to Enactment.101
95 See Rubino-Samartano (2001, p. 139) and August (2004, p. 143) for a list of
some of these institutions.
96 D’Arcy et al. (2000, pp. 490–91).
97 34 parties.
98 The 1968 Hague-Visby Rules (Protocol of 23 February 1968) are a variant of
the original 1924 Hague Rules (International Convention for the Unification of Certain
Rules of Law Relating to Bills of Lading). They currently have more than 80 Member
States. See August (2004, pp. 617–18); Gillies and Möens (1998, p. 176).
99 More than 30 countries have used the Model Law in drafting their arbitration
laws. See Wolf (2004, pp. 243–4).
100 Not yet in force, 10 actions required.
101 Legislative texts based on or largely inspired by the UNCITRAL Model Law
• 1995 United Nations Convention on Independent Guarantees and

Stand-by Letters of Credit.102
• 1996 UNCITRAL Model Law on Electronic Commerce with Guide to
Enactment.103
• 1997 UNCITRAL Model Law on Cross-Border Insolvency with Guide
to Enactment.104
• 2001 United Nations Convention on the Assignment of Receivables in
International Trade.105
• 2001 UNCITRAL Model Law on Electronic Signatures with Guide to
Enactment.106
• 2005 United Nations Convention on the Use of Electronic
Communications in International Contracts.107
The 1958 Convention on the Recognition and Enforcement of Foreign Arbitral

Awards – the ‘New York Convention’108 – was adopted by the United Nations
before UNCITRAL came into existence. UNCITRAL, however, has been
instrumental in the continued promotion of this convention, leading to more
than two-thirds of accessions since the establishment of UNCITRAL.109 This
convention is generally regarded as one of the most successful international
trade law harmonization instruments, as international arbitration plays a vital
role in international trade.110 The Convention was initiated by a request of the
ICC to the Economic and Social Council of the United Nations (ECOSOC) in
1955 to consider the adoption of the draft convention developed by the ICC.111
on Procurement of Goods, Construction and Services have been adopted in various

countries including Afghanistan, Albania, Azerbaijan, Bangladesh, Croatia, Estonia,
The Gambia, Guyana, Kazakhstan, Kenya, Kyrgyzstan, Madagascar, Malawi,
Mauritius, Moldova, Mongolia, Nepal, Nigeria, Poland, Romania, Rwanda, Slovakia,
Tanzania, Uganda, Uzbekistan and Zambia.
102 8 parties.
103 The Model Law has been used in 60 countries worldwide.
104 Legislation based on the UNCITRAL Model Law on Cross-Border
Insolvency has been adopted in: Australia, the British Virgin Islands, Colombia,
Eritrea, Great Britain, Japan, Mexico, Montenegro, New Zealand, Poland, the Republic
of Korea, Romania, Serbia, Slovenia, South Africa, and the United States of America.
105 Not yet in force (5 actions required).
106 Legislation based on the UNCITRAL Model Law on Electronic Signatures
has been adopted in Cape Verde (2003), China (2004), Guatemala (2008), Mexico
(2003), Thailand (2001), United Arab Emirates (2006) and Vietnam (2005).
107 Not yet in force, 3 actions required.
108 144 members.
109 http://www.UNCITRAL.org/UNCITRAL/en/UNCITRAL_texts/arbitra-
tion/NYConvention.html, accessed 5 June 2009.
110 Briner (1998).
111 See Report of the Committee on the Enforcement of International Arbitral
The text was adopted by a diplomatic conference attended by 45 countries and

was initially signed by 10 countries, but now has 144 members representing
98 per cent of world trade.112
Very often, arbitration awards need to be enforced in countries other than
the place where the arbitration took place and such an award becomes mean-
ingless if it cannot be effectively enforced.113 This convention has contributed
in a large measure to ensure that arbitral awards will be recognized and
enforced efficiently in a large number of countries.114 It has also indirectly
contributed to the growth of international commercial arbitration since the
second half of the twentieth century.115 Like the CISG, the New York
Convention is an example of a formal legally binding convention that has been
utilized to achieve a high level of international harmonization.
UNCITRAL has also employed soft law instruments where it regarded the
use of conventions as inappropriate. Amongst others, it has adopted two model
laws aimed at facilitating the drafting of national legislation on electronic
commerce law and one on international commercial arbitration. The aim of the
model laws is to achieve harmonization by influencing domestic legislatures
to adopt electronic commerce laws which, if not identical, are at least similar
in their approach.
The 1985 Model Law on International Commercial Arbitration has met
with considerable success. More than thirty countries have based their domes-
tic legislation on it.116
The 1996 Model Law on Electronic Commerce has been quite successful,
with more than fifty countries employing it as the basis on which they drafted
their national legislation.117 The 2001 Model Law on Electronic Signatures
has been less successful, with only a handful of countries having used it.118
Awards 2/2704 of 28 March 1955 available at http://www.UNCITRAL.org/pdf/

english/travaux/arbitration/NY-conv/e-ac/eac424r1-N5508097.pdf, accessed 5 June
2009.
112 See United Nations documents E/CONF.26/8/Rev.1 available at
http://www.UNCITRAL.org/pdf/english/travaux/arbitration/NY-conv/e-conf-26/8r1-
N5829382.pdf, accessed 5 June 2009 and E/CONF.26/SR.25 of 12 September 1958
available at http://www.UNCITRAL.org/pdf/english/travaux/arbitration/NY-conv/
e-conf-26-sr/25-N5815727.pdf, accessed 5 June 2009.
113 D’Arcy et al. (2000, p. 497).
114 Rubino-Samartano (2001, pp. 937 ff.).
115 Nariman (1998).
116 http://www.UNCITRAL.org/UNCITRAL/en/UNCITRAL_texts/arbitration/
1985Model_arbitration.html, accessed 5 June 2009.
117 http://www.UNCITRAL.org/UNCITRAL/en/UNCITRAL_texts/electronic_
commerce/1996Model.html, accessed 5 June 2009.
118 http://www.UNCITRAL.org/UNCITRAL/en/UNCITRAL_texts/electronic_
commerce /2001 Model_ signatures .html, accessed 5 June 2009.
The failure of this model law can probably be ascribed to two factors: firstly,
the 1996 Model Law contained provisions on electronic signatures which
many countries regarded as sufficient as a basis for their own solutions and,
secondly, the 2001 Model Law was regarded as insufficient to solve the prob-
lems involved with electronic signatures and legislators therefore preferred to
adopt their own solutions in keeping with the requirements and quirks of their
domestic laws.119
As is evident from the above list of instruments, UNCITRAL has been
playing a key role in the process of international trade law harmonization and
is likely to do so in future too. Its successes so far can be ascribed to the inclu-
sive and democratic manner in which it is composed and in which it carries
out its work. The drafting of its instruments follows a cumbersome and fairly
slow process of consultation, drafting in specialist working groups and further
discussion and assessment of such drafts by UNCITRAL itself.
UNCITRAL has been reasonably successful in identifying areas of inter-
national trade law in need of harmonization and drafting appropriate instru-
ments, even if not all of its instruments have met with the same measure of
acceptance. It is sometimes difficult to gauge the level of acceptance and
therefore success of an instrument, as there usually is quite a long time lapse
between the initial drafting and the entry into force of the convention and its
subsequent adoption by further countries. In the case of the very successful
CISG, almost eight years elapsed between its adoption in 1980 and its entry
into force in 1988, but since then it has gained widespread support with new
countries acceding every year since. It may therefore take decades, rather than
years, to assess whether a particular instrument has met with success or not.
3.3.2 The International Chamber of Commerce (ICC)

The International Chamber of Commerce was founded in 1919 with its prin-
cipal aim to serve world business by promoting trade and investment, open
markets for goods and services, and the free flow of capital.120 The ICC’s
initial driving force was Etienne Clémentel, a former French minister of
commerce who acted as its first president. The organization’s international
secretariat was accordingly established in Paris. Clémentel was also instru-
mental in the founding of the ICC International Court of Arbitration in
1923.121
Initially, the ICC consisted of a number of European countries and the
United States, but it has since grown into a world business organization
119 Jaglom (2009); Winn and Silveira (2007, p. 239).

121 See http://www.iccwbo.org, accessed 5 June 2009; August (2004, pp. 40–41).
representing thousands of businesses and business organizations in more than

130 countries. These businesses represent many internationally influential
companies and every major industrial and service sector.122 The ICC repre-
sents itself as the ‘voice of international business’ and enjoys a high level of
recognition and status.123 In 1945 it was granted the highest level consultative
status within the United Nations and its specialized agencies such as UNCI-
TRAL, where it has consistently made submissions on subjects of interest to
its members.124
The ICC has 16 specialized commissions dealing with various subjects of
concern to the international business community. Subjects range from banking
techniques to financial services and taxation, from competition law to intel-
lectual property rights, telecommunications and information technology, from
air and maritime transport to international investment regimes and trade
policy.125 One of the leading principles in all of these committees is that of
self-regulation. These committees draft codes on specific topics that may be
voluntarily adopted by businesses or business sectors.126
Two ICC instruments have been particularly important for international trade
law harmonization, namely Incoterms and the Uniform Customs and Practice
for Documentary Credits (UCP). Incoterms consist of a number of standard
trade terms and definitions which have been very widely and commonly used in
world trade.127 The UCP makes provision for rules regulating the rights and
obligations of the parties, including banks, involved in payment by way of a
documentary credit or letter of credit.128 Banks almost invariably incorporate the
provisions of the UCP in letters of credit that they issue.129
Incoterms were initially published in 1936 in order to standardize the mean-
ing of trade terms such as ex works (EXW), free on board (FOB), cost and
freight (C&F) and cost insurance freight (CIF) that were widely used in inter-
national trade but did not have a standardized meaning or consequences in
different legal systems.130 The use and consequences of these terms were
122 See http://www.iccwbo.org, accessed 5 June 2009.

127 J. Ramberg (1999, p. 10); August (2004, pp. 593–4); D’Arcy et al. (2000, pp.
7–8).
128 J. Ramberg (2000, p. 142); August (2004, pp. 674–6).
129 August (2004, p. 676); D’Arcy et al. (2000).
130 ICC INCOTERMS 2000: Report of the Secretary-General (A/CN.9/479) § 1
published in UNCITRAL Yearbook 2000 Vol. XXXI. See also Eiselen and Kritzer
(2008) § 88:1; Honnold (1999, p. 206); Huber and Widmer (2005, p. 338); Gabriel
(2001, pp. 41–73); J. Ramberg (1999).
therefore sometimes uncertain or confusing.131 Since their initial publication

Incoterms have undergone six revisions, with Incoterms 2000 being the
latest.132 The revisions were aimed at keeping pace with the changing nature
in the transport of goods in international trade.
Incoterms have been drafted in the nature of voluntary rules which can be
incorporated into their contract by parties. Courts worldwide have accepted
the validity of this type of inclusion by parties and have adhered to the defin-
itions supplied by the ICC, provided that it was clear that the parties intended
to refer to the ICC Incoterms.133 These terms are so widely used and accepted
in international sales and transport that they have almost achieved the status of
trade custom. The value of using Incoterms is recognized in that there are
detailed rules which are well known internationally and can be incorporated
by, for instance, simply referring to ‘CIF Incoterms 2000’.134 Such a reference
will be sufficient to determine the following consequences: the party who is
responsible for the arrangement and cost of transport or freight during the vari-
ous stages of transport; the party who is responsible for arranging and payment
of insurance; the incidence and transfer of risk in the case of the goods becom-
ing damaged or destroyed during the period of transport (which is not related
to ownership at all); the party who is responsible for export and import
licences and clearance and the payment of duties and taxes; and the party who
is responsible for the payment of other related or incidental costs.135
131 For instance, the American Uniform Commercial Code contained a number of
trade terms such as F.O.B., F.A.S., C.I.F. and C&F – see ss. 2-319 to 2-322 – which
carried meanings slightly different from the ICC Incoterms. In the latest revision of the
UCC, these trade terms have been specifically abandoned due to the confusion caused
with the ICC Incoterms. In a legislative note to s 2-319 it is stated that ‘Sections 2-319
through 2-324 have been eliminated because they are inconsistent with modern
commercial practices.’
132 ICC INCOTERMS 2000: Report of the Secretary-General (A/CN.9/479).
133 D’Arcy et al. (2000, pp. 7–8); August (2004, pp. 593–4); Huber and Widmer
(2005, p. 338) Art 30 §§ 3 and 4; Honnold (1999, p. 206). See for instance United
States BP Oil Intern., Ltd. v Empresa Estatal Petoleos de Ecuador, 332 F.3d 333, 335,
200 A.L.R. Fed. 771 (5th Cir. 2003); Argentina 2 July 2003 Juzgado Comercial
[Commercial Court] Buenos Aires (Arbatax S.A. Reorganization Proceeding)
http://cisgw3.law.pace.edu/cases/030702a1.html, accessed 5 June 2009; United States
St. Paul Guardian Ins. Co. v Neuromed Medical Systems & Support, GMBH, 53 Fed.
Appx. 173 (2d Cir. 2002); Russia 11 April 1997 Arbitration proceeding 220/1996
http://cisgw3.law.pace.edu/cases/970411r1.html, accessed 5 June 2009; Spain 3
October 2002 Audiencia Provincial [Appellate Court] Pontevedra (Frozen stockfish
case) http://cisgw3.law.pace.edu/cases/021003s4.html, accessed 5 June 2009.
134 J. Ramberg (1999, p. 10); Honnold (1999, p. 206); Huber and Widmer (2005,
p. 338) Art 30 §§ 3 and 4.
135 J. Ramberg (1999, pp. 38–50; 8–17); Gabriel (2001, pp. 41–73).
The first version of the Uniform Customs and Practice for Documentary
Credits (UCP) was published in 1933 as a set of voluntary rules to be adopted
mainly by banks when dealing with documentary credits in the payment
process.136 Like Incoterms, the UCP has undergone a number of revisions over
the years to keep abreast with the changes that have taken place in international
banking, insurance and transport practice and have been introduced by newer
technologies.137 The latest version is UCP 600, which came into effect on 1
July 2007. In his foreword to UCP 600, the Secretary General of the ICC states
that ‘[t]he 39 articles of UCP 600 are a comprehensive and practical working
aid to bankers, lawyers, importers, and exporters, transport executives, educa-
tors, and everyone involved in letter of credit transactions worldwide.’138
The drafting process of UCP 600 involved extensive consultations and
deliberations to ensure its eventual acceptability. The ICC Secretary General
describes the process as follows:139
A range of individuals and groups contributed to the current revision, which is enti-
tled UCP 600. These include the UCP Drafting Group, which sifted through more
than 5000 individual comments before arriving at this consensus text; the UCP
Consulting Group, consisting of members from more than 25 countries, which
served as the advisory body reacting to and proposing changes to the various drafts;
the more than 400 members of the ICC Commission on Banking Technique and
Practice who made pertinent suggestions for changes in the text; and ICC national
committees worldwide which took an active role in consolidating comments from
their members.
This description provides evidence that the rules have been developed and
drafted in a transparent and democratic manner by the ICC by consulting as
widely as possible. Although these rules are in the nature of a voluntary code,
the vast majority of banks worldwide adhere to them by incorporating them
into letters of credit that they issue.140
Incoterms and the UCP provide examples of voluntary rules that have been
very successful in harmonizing international trade by providing clear and
succinct rules that are well known internationally and are very widely used in
international trade. The success of Incoterms has even caused the drafters of
the American Uniform Commercial Code to jettison similar trade terms that
had existed in the UCC in the latest suggested amendments to the UCC.141
136 August (2004, p. 676); http://www.iccwbo.org/id93/index.html, accessed 5

June 2009.
137 Collyer (2007).
138 Collyer (2007).
139 Collyer (2007).
140 August (2004, p. 676); J. Ramberg (2000, p. 142).
141 A 2003 legislative note to § 2-319 states: ‘Sections 2-319 through 2-324 have
3.3.3 Unidroit
The International Institute for the Unification of Private Law (Unidroit) is an
independent intergovernmental organization with its seat in the Villa
Aldobrandini in Rome. Its purpose is to study needs and methods for modern-
izing, harmonizing and co-ordinating private and in particular commercial law
as between states and groups of states. It was founded in 1926 as an auxiliary
organ of the League of Nations. After the demise of the League it was re-estab-
lished in 1940 on the basis of a multilateral agreement, the UNIDROIT
Statute.142
Unidroit currently consists of 63 Member States from five continents which
represent a variety of different legal, economic and political systems as well
as different cultural backgrounds. Its independent status as an intergovern-
mental organization has enabled it to use working methods which have made
it a particularly suitable forum to engage in more technical issues.143
Unidroit’s basic statutory objective is to prepare modern and, where appropri-
ate, harmonized uniform rules of private law understood in a broad sense.
These uniform rules are mostly aimed at the harmonization of substantive law
rules.144
The uniform rules drawn up by Unidroit have traditionally been in the form
of international conventions. The low priority that is sometimes given to the
implementation of these conventions has forced Unidroit to consider the use
of alternative methods of unification and harmonization, especially in those
instances where a binding instrument was not necessarily essential.145 Such
alternatives have included model laws that states may utilize when drafting
domestic legislation or general principles which are addressed directly to
judges, arbitrators and contracting parties who can freely decide whether to
use them or not.146
Where the Governing Council has identified a subject that it deems in need
of harmonization, it will appoint a study group. The study group is usually
chaired by a member of the council, and is made up of experts in the particu-
lar field identified by the secretariat. The secretariat endeavours to assemble a
been eliminated because they are inconsistent with modern commercial practices.’ And
the Official Comment states: ‘Sections 2-319 through 2-324 have been repealed. The
effect of a party’s use of shipping terms such as “FOB,” “CIF,” or the like, absent any
express agreement to the meaning of the terms, must be interpreted in light of any
applicable usage of trade and any course of performance or course of dealing between
the parties.’
142 http://www.unidroit.org/dynasite.cfm?dsmid=84219, accessed 5 June 2009.
study group that will be as representative as possible, having regard to the

world’s different legal and economic systems and geographic regions.147
Unidroit was ultimately responsible for the drafting of the two Hague Sales
Conventions of 1964 discussed above, which were adopted only by a handful
of mostly European states, but were influential in the drafting of the CISG.
Since 1964 Unidroit has been responsible for the drafting of 11 conventions148
of which the 2001 Cape Town Convention on International Interests in Mobile
Equipment has been the most successful.149
Unidroit has also developed two model laws, the Model Franchise
Disclosure Law (2002) and the UNIDROIT Model Law on Leasing (2008). As
yet it is too early to comment on the success of these two instruments.
The most interesting work undertaken by Unidroit, however, has been the
two sets of Principles that it has adopted, namely the 2004 ALI/UNIDROIT
Principles of Transnational Civil Procedure150 and the 2004 UNIDROIT
Principles of International Commercial Contracts (an amendment of the orig-
inal 1994 version of the Principles).151 The black letter text of the principles
is augmented with official comments explaining and expanding on the practi-
cal application of the principles.
The ALI/UNIDROIT Civil Procedure Principles were adopted as a joint
project with the American Law Institute with the aim of:152
reconciling differences among various national rules of civil procedure, taking into
account the peculiarities of transnational disputes as compared to purely domestic

148 For a full list of the conventions and other instruments it has drafted, see
http://www.unidroit.org/dynasite.cfm?dsmid=84219, accessed 5 June 2009.
149 The 2001 Cape Town Convention has 32 members. The other conventions are
the two 1964 Hague Sales Conventions (denounced by all states who have acceded to
the CISG); the 1970 Brussels International Convention on Travel Contracts; 1973
Washington Convention providing a Uniform Law on the Form of an International Will
(19 members); 1983 Geneva Convention on Agency in the International Sale of Goods
(6 signatories); 1988 Ottowa UNIDROIT Convention on International Financial
Leasing (10 members); 1988 Ottowa UNIDROIT Convention on International
Factoring (7 members); 1995 Rome UNIDROIT Convention on Stolen or Illegally
Exported Cultural Objects (29 members); 2001 Cape Town Protocol to the Convention
on International Interests in Mobile Equipment on Matters specific to Aircraft
Equipment (29 members); 2007 Luxembourg Protocol to the Convention on
International Interests in Mobile Equipment on Matters specific to Railway Rolling
Stock.
150 Text available at http://www.unidroit.org/english/principles/civilprocedure/
main.htm, accessed 5 June 2009.
151 Text available at http://www.unidroit.org/english/principles/contracts/
main.htm, accessed 5 June 2009.
152 Preamble to the Principles.
ones. They may not only serve as guidelines for code projects in countries without
longer procedural traditions, but may initiate law reforms even in countries with
long and high quality procedural traditions; they may also be applied by analogy in
international commercial arbitration.
These principles provide an interesting point of departure in the harmonization

of an area of the law that has traditionally been perceived as very diverse inter-
nationally, for historical and cultural reasons. As yet it is too early to comment
on the likely success of these principles in influencing the harmonization of
this part of the law.
The UNIDROIT Principles of International Commercial Contracts (UP)
were drafted to serve as an instrument that may be expressly used or adopted
by the parties to an international commercial agreement, or by courts and arbi-
tral tribunals where the parties have failed to choose a governing law or have
simply referred to general principles of international law or the lex mercato-
ria, and, also as an aid to national and international law reform.153 The UP has
proved to be a remarkably successful soft law instrument in all three of these
areas.154 Although parties seldom refer to the UP expressly, they quite often
provide that their contract should be governed by ‘general principles of law’
or the ‘lex mercatoria’. It is especially within arbitral tribunals, which have
much more freedom in regard to the law that they will apply, that the UP has
been widely used. Surprisingly, the UP has also been used by courts and
tribunals to supplement or help interpret domestic law.155
3.3.4 World Customs Organization

The World Customs Organization (WCO) describes itself as:156
153 Preamble to the Principles.

154 See Bonell (2006, pp. xv–xviii); Gopalan (2008, p. 334); Castellucci (2007, p.
35); Felemegas (2007, p. 33). Cases where the UP has been used include Austria 15
June 1994 Vienna Arbitration proceeding SCH-4366 (Rolled metal sheets case)
http://cisgw3.law.pace.edu/cases/940615a3.html § 5.2.2, accessed 5 June 2009; France
23 October 1996 Appellate Court Grenoble (Gaec des Beauches v Teso Ten Elsen)
http://cisgw3.law.pace.edu/cases/961023f1.html, accessed 5 June 2009; Russia 6 June
2003 Arbitration proceeding 97/2002 http://cisgw3.law.pace.edu/cases/030606r1.html,
accessed 5 June 2009; Netherlands 10 February 2005 Netherlands Arbitration Institute
(interim award) http://cisgw3.law.pace.edu/cases/050210n1.html, accessed 5 June
2009; Belarus 20 May 2003 Supreme Economic Court of the Republic of Belarus
(Holzimpex Inc. v State Farm-Combine Sozh) http://cisgw3.law.pace.edu/cases/
030520b5.html, accessed 5 June 2009.
155 Bonell (2006, p. xviii) mentions that in almost half of the 130 cases collected
by Unidroit, the UP has been used to interpret or supplement domestic law, an objec-
tive not even mentioned in the Preamble of the UP. These included decisions from
developed and developing nations.
156 On its website at http://www.wcoomd.org/home_about_us.htm, accessed 5
June 2009.
the only intergovernmental organisation exclusively focused on Customs matters.

With its worldwide membership, the WCO is now recognised as the voice of the
global Customs community. It is particularly noted for its work in areas covering
the development of global standards, the simplification and harmonisation of
Customs procedures, trade supply chain security, the facilitation of international
trade, the enhancement of Customs enforcement and compliance activities, anti-
counterfeiting and piracy initiatives, public-private partnerships, integrity promo-
tion, and sustainable global Customs capacity building programmes. The WCO also
maintains the international Harmonized System goods nomenclature, and adminis-
ters the technical aspects of the WTO Agreements on Customs Valuation and Rules
of Origin.157
The WCO started out as a European initiative to found a regional customs co-
operation organization in 1947, but was formalized as an international conven-
tion in 1952, establishing the Customs Co-operation Council. In 1994 it
became known as the World Customs Organization to reflect the fact that it
had become a truly international organization.158 It currently has 174 members
accounting for 98 per cent of international trade.159
One of the key tasks of the Council was to establish a harmonized system
for the classification of goods for tariff purposes.160 It was recognized that the
implementation of reciprocal tariff agreements under the 1947 General
Agreement on Tariffs and Trade (GATT) would suffer if identical goods were
not classified in an identical way for tariff purposes. This eventually led to the
1983 Brussels International Convention on the Harmonized Commodity
Description and Coding System (‘Harmonized System’), according to which
all products are classified for customs purposes on importation.161 All
Member States are obliged to apply their customs laws according to the
Harmonized System.162 The Harmonized System has played an important part
157 http://www.wcoomd.org/home_about_us.htm, accessed 5 June 2009.

158 On its website at http://www.wcoomd.org/home_about_us_auhistory.htm,
accessed 5 June 2009.
159 On its website at http://www.wcoomd.org/home_about_us_our_profile.htm,
160 Williams (2002, pp. 231–2) § 526. See also the Preamble to the 1983 Brussels
International Convention on the Harmonized Commodity Description and Coding
System.
161 South Africa Commissioner for Customs and Excise v Kemtek Imaging
Systems Ltd 1999 (4) SA 906 (SCA) § [3]; Williams (2002, p. 231–2) § 526. See also
the information provided by the WCO on its website at http://www.wcoomd.org/
files/1.%20Public%20files/PDFandDocuments/Conventions/Hsconve21.pdf, accessed
5 June 2009.
162 See Art 3 of the Convention. For instance, in South Africa the detailed tariff
classifications of the Harmonized System are found in Schedule 1 of the Customs and
Excise Act 91 of 1964. The Schedule is amended regularly in accordance with the
in the success of GATT to lower customs duties worldwide through a consis-

tent and fair application of reciprocal customs agreements.
The Harmonized System consists of about 5000 commodity groups; each
identified by a six-digit code, arranged in a legal and logical structure and
supported by well-defined rules to achieve uniform classification. The WCO
also publishes Explanatory Notes to the various sections, chapters and indi-
vidual tariff headings as an official aid to interpretation to ensure a consistent
and uniform interpretation of the tariff headings.163 Although there is domes-
tic litigation from time to time due to the fact that certain products are difficult
to classify in accordance with the Harmonized System,164 the Harmonized
System has created a remarkable level of uniformity in a key area of interna-
tional trade.
4 CONCLUSION
From the historical accounts of the different areas of international trade law
where harmonization has been attempted, it becomes clear that not all instru-
ments have enjoyed equal success or support, although with some instruments
it is just too early to tell what their eventual impact will be. One must realize
from the outset that the development and drafting process will be cumbersome
and slow if it is to adhere to basic democratic values of inclusiveness, repre-
sentativeness and transparency. However, circumventing this slow process
will probably lead to an instrument which will not find much favour.
The description of the various methods of harmonization that have been
employed by the different agents and promoters of the harmonization of inter-
national trade law and of those areas of the law where harmonization has been
attempted provides an indication of the critical success factors necessary to
achieve effective and real harmonization. These factors include:
amendments to the Harmonized System to provide for new classifications and new
goods. See Williams (2002, pp. 231–2) § 526.
163 See Art 7 of the Convention. See also South Africa Commissioner for
Customs and Excise v Kemtek Imaging Systems Ltd 1999 (4) SA 906 (SCA) § [3];
Williams, (2002, pp. 231–232) § 526. See also the information provided by the WCO
on its website at http://www.wcoomd.org/files/1.%20Public%20files/
PDFandDocuments/Conventions/Hsconve21.pdf, accessed 5 June 2009.
164 See for instance the following classic South African customs cases: African
Oxygen Ltd v Secretary for Customs and Excise 1969 3 SA 391 (T); Autoware (Pty) Ltd
v Secretary for Customs and Excise 1975 (4) SA 318 (W); Secretary for Customs and
Excise v Thomas Barlow and Sons Ltd 1970 (2) SA 660 (A); International Business
Machines SA (Pty) Ltd v Commissioner for Customs and Excise 1985 (4) SA 852 (A);
Commissioner for Customs and Excise v C I Caravans (Pty) Ltd 1993 (1) SA 138 (N);
Commissioner for Customs and Excise v Capital Meats CC 1991 (1) SA 570 (SCA).
• Real or strongly perceived need for harmonization. There must be a real

practical need for harmonization or a strong perception that harmoniza-
tion is necessary or will be beneficial among stakeholders. In the
absence of such a need or perception, any attempted harmonization
instrument will enjoy little support.
• Properly contained target area. It is necessary that the harmonizing body
properly and realistically define the area which it perceives as in need
of harmonization. Projects that are too ambitious or wide in scope will
probably not come to fruition.
• Representative and authoritative body/promoter/agent. It is necessary
that the harmonization agent be sufficiently representative of all the
stakeholders in the field that is being harmonized and that it has suffi-
cient authority to successfully promote its harmonization instrument.
The absence of these basic democratic principles will probably lead to
the failure of the particular instrument.
• Choice of the proper instrument – hard or soft law. There are a variety
of different instruments available to harmonization agents, and all of
them have been successfully employed in recent years. Proper thought
must be given to which instrument will be the most appropriate for the
particular purpose.
• Proper promotion of the eventual instrument. The harmonization agent
must keep on promoting the instrument amongst interested parties to
ensure its successful implementation. Often national governments do
not give sufficiently high priority to the introduction or acceptance of
these harmonization instruments.
• Availability of texts and other information. The experience with the
CISG has shown that the success of an instrument, especially the
harmonized application of the instrument, is dependent on a proper
dissemination of the information in respect to the instrument. Making
sources such as commentaries, academic writings and case law gener-
ally available will contribute significantly in time to ensuring the
successful harmonization of the particular field.
As is evident from the current work undertaken by organizations like

UNCITRAL, Unidroit and the ICC, there are still many areas of international
trade law which could potentially benefit from further harmonization,
although it is difficult to predict which instruments will eventually be success-
ful. This should not discourage these and other bodies from continuing with
this work. Although these forms of lawmaking beyond national borders may
sometimes be questioned on the basis of their democratic nature, the above
analysis shows that in the harmonization of international trade law most
successful instruments have been built on basic democratic principles. In this
particular field undemocratic instruments are likely to be simply ignored into

oblivion.
REFERENCES
Conventions
1924 Hague Rules (International Convention for the Unification of Certain Rules of
Law Relating to Bills of Lading)
1929 Warsaw Convention for the Unification of Certain Rules Relating to
International Carriage by Air
1968 Hague-Visby Rules (Protocol of 23 February 1968)
1969 Vienna Convention on the Law of Treaties
1970 Brussels International Convention on Travel Contracts
1973 Washington Convention providing a Uniform Law on the Form of an
International Will
1983 Brussels International Convention on the Harmonized Commodity Description
and Coding System
1983 Geneva Convention on Agency in the International Sale of Goods
1988 Ottowa UNIDROIT Convention on International Factoring
1988 Ottowa UNIDROIT Convention on International Financial Leasing
1995 Rome UNIDROIT Convention on Stolen or Illegally Exported Cultural Objects
2001 Cape Town Protocol to the Convention on International Interests in Mobile
Equipment on Matters specific to Aircraft Equipment
2007 Luxembourg Protocol to the Convention on International Interests in Mobile
Equipment on Matters specific to Railway Rolling Stock
Legislation
American Uniform Commercial Code

Australia Electronic Transactions Act 162 of 1999
South Africa Customs and Excise Act 91 of 1964
South Africa Electronic Communications and Transactions Act Chapter III
Case Law
Argentina 2 July 2003 Juzgado Comercial [Commercial Court] Buenos Aires (Arbatax
S.A. Reorganization Proceeding) http://cisgw3.law.pace.edu/cases/030702a1.html
accessed 5 June 2009
Australia 24 October 2008 Federal Court [South Australia District] (Hannaford v
Australian Farmlink Pty Ltd) http://cisgw3.law.pace.edu/cases/081024a2.html
Austria 13 April 2000 Oberster Gerichtshof [Supreme Court] http://cisgw3.law.
pace.edu/cases/000413a3.html accessed 5 June 2009
Austria 15 June 1994 Vienna Arbitration proceeding SCH-4366 (Rolled metal sheets
case) http://cisgw3.law.pace.edu/cases/940615a3.html accessed 5 June 2009
Belarus 20 May 2003 Supreme Economic Court of the Republic of Belarus (Holzimpex
Inc. v State Farm-Combine Sozh) http://cisgw3.law.pace.edu/cases/030520b5.html
China 10 August 1999 CIETAC Arbitration proceeding (Raincoat case)
http://cisgw3.law.pace.edu/cases/990810c1.html accessed 5 June 2009
China 26 June 2003 CIETAC Arbitration proceeding (Alumina case)
China 18 December 2003 CIETAC Arbitration proceeding (AOE and PECVD
machines case) http://cisgw3.law.pace.edu/cases/031218c1.html accessed 5 June
2009
China 14 December 2004 Xiamen Intermediate People’s Court [District Court] of
Fujian Province (Xiamen Xiang Yu Group Corporation v Mechel Trading AG)
China 23 September 2005 New Pudong District People’s Court [District Court] of
Shanghai (Xi’an Yun Chang Trade Ltd. v An Tai International (USA))
England Fothergill v Monarch Airlines Ltd [1980] 2 All ER 696
England James Buchanan & Co Ltd v Babco Forwarding and Shipping (UK) Ltd
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France 23 October 1996 Appellate Court Grenoble (Gaec des Beauches v Teso Ten
Elsen) http://cisgw3.law.pace.edu/cases/961023f1.html accessed 5 June 2009
Germany 9 January 2002 Bundesgerichtshof [Federal Supreme Court] (Powdered milk
case) http://cisgw3.law.pace.edu/cases/020109g1.html accessed 5 June 2009
Germany 8 January 2004 Landgericht [District Court] Trier http://cisgw3.law.pace.edu/
cases/040108g1.html accessed 5 June 2009
Italy 12 July 2000 Tribunale [District Court] Vigevano (Rheinland Versicherungen v
Atlarex) http://cisgw3.law.pace.edu/cases/000712i3.html accessed 5 June 2009
Italy 25 February 2004 Tribunale [District Court] Padova http://cisgw3.law.pace.edu/
cases/040225i3.html accessed 5 June 2009
Italy 11 December 2008 Tribunale di Forli [District Court] (Mitias v Solidea S.r.l.)
http://cisgw3.law.pace.edu/cases/081211i3.html accessed 5 June 2009
Netherlands 10 February 2005 Netherlands Arbitration Institute (interim award)
http://cisgw3.law.pace.edu/cases/050210n1.html accessed 5 June 2009
Russia 11 April 1997 Arbitration proceeding 220/1996 http://cisgw3.law.pace.edu/
cases/970411r1.html accessed 5 June 2009
Russia 6 June 2003 Arbitration proceeding 97/2002 http://cisgw3.law.pace.edu/
cases/030606r1.html accessed 5 June 2009
South Africa African Oxygen Ltd v Secretary for Customs and Excise 1969 3 SA 391
(T)
South Africa Autoware (Pty) Ltd v Secretary for Customs and Excise 1975 (4) SA 318
(W)
South Africa Commissioner for Customs and Excise v C I Caravans (Pty) Ltd 1993 (1)
SA 138 (N)
South Africa Commissioner for Customs and Excise v Capital Meats CC 1991 (1) SA
570 (SCA)
South Africa Commissioner for Customs and Excise v Kemtek Imaging Systems Ltd
1999 (4) SA 906 (SCA)
South Africa Improvair (Cape) (Pty) Ltd v Establissements Neu 1983 2 SA (C)
South Africa International Business Machines SA (Pty) Ltd v Commissioner for
Customs and Excise 1985 (4) SA 852 (A)
South Africa Laconian Maritime Enterprises Ltd v Agromar Lineas Ltd 1986 3 SA 509
(D)
South Africa Secretary for Customs and Excise v Thomas Barlow and Sons Ltd 1970
(2) SA 660 (A)
Spain 3 October 2002 Audiencia Provincial [Appellate Court] Pontevedra (Frozen
stockfish case) http://cisgw3.law.pace.edu/cases/021003s4.html accessed 5 June
2009
United States BP Oil Intern., Ltd. v Empresa Estatal Petoleos de Ecuador, 332 F.3d
333, 335, 200 A.L.R. Fed. 771 (5th Cir. 2003)
United States Delchi Carrier SpA v Rotorex Corp., 71 F.3d 1024, 1028 (2d Cir. 1995)
United States MCC-Marble Ceramic Center, Inc., v Ceramica Nuova d’Agostino,
S.p.A., 144 F.3d 1384, 1388–9 (11th Cir. 1998)
United States Medical Marketing International, Inc., v Internazionale Medico
Scientifica, S.R.L., 99-0380, 1999 U.S. Dist. LEXIS 7380, at (E.D. La. May 17,
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United States St. Paul Guardian Ins. Co. v Neuromed Medical Systems & Support,
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PART III
Public law
5. The relation between private law and
administrative law in view of
globalization
Frits Stroink
1 THE TRUE NATURE OF ADMINISTRATIVE LAW

What is administrative law? In most manuals you find a definition such as:
administrative law is law governing the relation between administration and
citizen. That is true, but not the whole truth. Indeed, the administration deter-
mines unilaterally the legal position of a citizen when conferring licences,
subsidies and so on, but, for a large part, administrative law aims at regulat-
ing, directing and determining the legal relation between citizens.
Administrative law is an instrument of the administration to realize public
policies in society. Administrative law is the result of the policy making
process. The law (in fact the people via the parliament) gives the administra-
tion the tools, the power to intervene in society.
Let me give some examples. The conditions of an environmental licence are
of course meant to protect the environment (an aspect of the general interest)
but they are also meant to protect the legal position of neighbours (third inter-
ested parties). If a licence holder does not meet the conditions of a licence, he
can under Dutch law commit a tort against a neighbour. This is a clear example
that an administrative decision influences the private law relation between two
citizens (a licence holder and his neighbour). This is not only the case with
environmental licences but also with other licences like building licences.
Another example is to be found in the field of financial administrative law.
Banks and insurance companies need a licence for exercising their business.
The reason for the licence is to protect the citizen, the customer, against bad
banking and insurance. The conditions of the licence are related to the financial
situation of the company and the integrity of the board of directors and
managers. The administration furthers the trust of the citizen in a bank. This is
an example of the fact that administrative law is a precondition for a well-func-
tioning system of contracts betweens banks and clients. Furthermore, the state
guarantees the saving deposits of a client to a certain amount.
139
In recent years there has been a discussion in the Netherlands about the
responsibility and liability of a supervising authority when the licence holder
does not meet the conditions of the licence. Does the supervisor then commit
a tort against an injured person? At this moment the Dutch judge is reserved
(only in cases of grave errors) reviewing the case but I do not exclude in the
coming years a tendency towards a more strict liability.
So, we can say that administrative law very often plays an important role in
the civil law relations between citizens. Administrative law is an addition to
and a correction of civil law.1 Administrative law contributes to a well-
functioning system of civil law. In a modern society a well-functioning civil
law is unthinkable without the existence of a developed system of administra-
tive law. Civil law and administrative law are closely connected, interwoven.
The Benthem case as decided by the Strasbourg Human Rights Court is an
apt illustration of the relation between civil law and administrative law. The
refusal of the environmental licence affected the applicant’s civil rights and
obligations in the sense of Article 6 of the European Convention on Human
Rights (ECHR) because the licence requirement limited the applicant’s right
of ownership and freedom of contract. This meant that the applicant had a
right of access to an independent judicial body as stated in Article 6 ECHR. At
that time there was no such right in the Netherlands. In many cases there was
a right of administrative appeal to the crown, that is, the Government. In
consequence of the Benthem case the Dutch legislator abolished the right of
appeal to the Crown and created the possibility of appeal to an independent
administrative judge, being a division of the Council of State.2
2 CONTRACTS BETWEEN THE ADMINISTRATION AND

THE CITIZEN
Also in another respect there can be an influence of administrative law in civil
law relations. If the administration (as a civil law legal person) makes a civil
law contract with a citizen, of course civil law is applicable. But that is not the
whole story. Very often the administration tries to serve the general interest via
private law contracts. Sometimes, even, the administration makes a contract
instead of conferring a licence. Under Dutch law this is often forbidden
because the public law is usually considered to be exclusive but sometimes it
is permitted, for example in the field of spatial law.3 Under Dutch law not only
1 I first developed this approach to administrative law with Rene Seerden in

Seerden and Stroink (2007, pp. 155 and further).
2 ECHR 23 October 1985, Series A vol. 97.
3 See note 1, pp. 172 and further.
Private law and administrative law 141
is civil law applicable to these civil law relations but also general principles of
proper administration.
This is, you can say, a kind of mixed legal system. Both civil law and admin-
istrative law are applicable to contracts between the administration and the citi-
zen. The reason for this system is that the administration has always to act in
the general interest, as well as a civil law legal person. This doctrine was devel-
oped by the Dutch Supreme Court4 and laid down in the General Code of
Administrative Law in 1994.5 Under Dutch law the civil judge is the competent
judge in these cases. But in France, for example, some contracts between the
administration and the citizen are considered to be exclusively administrative
and therefore only the administrative judge is the competent judge. The deci-
sive criterion is the service public.6 In Germany it is sometimes possible to
make a contract between administration and citizen instead of the conferment
of a (unilateral) administrative decision.7 In these cases the administrative
judge is the competent judge. Under Dutch law the civil judge is also compe-
tent concerning the decision to make a civil law contract,8 but France and
Belgium know the phenomenon of the acte detachable.9 This means that the
administrative judge is competent to test the administrative decision to make a
civil contract. The conclusion is that contracts between the administration and
a citizen can be purely civil law contracts, exclusively administrative law
contracts or of a mixed nature. In many countries the administration also influ-
ences the civil law contracts between the administration and the citizen.
3 ADMINISTRATIVE LAW AND GLOBALIZATION10,11

Is there a tendency towards harmonizing and unifying administrative law in
Europe and in the world? In the world definitely not. Every country has its
own administrative law. Administrative law is national law. In the western
4 HR 27 March 1987, AB 1987, 273; NJ 1987, 727.

5 Article 3:1, section 2, Algemene wet bestuursrecht (General Code of
Administrative Law).
6 See Auby and Cluzel-Métayer (2007, pp. 72 and further).
7 See Schröder (2007, pp. 116 and further).
8 See art. 8:3, Algemene wet bestuursrecht (General Code of Administrative
Law).
9 See about this phenomenon Wauters (2009).
10 Globalization conceived as harmonization and unification of (substantive and
non-substantive) administrative law.
11 Kingsbury et al. (2005), http://law.duke.edu/journal/lcp. In spite of the title
the authors try to constitute an embryonic field of global administrative law, and the
results are preliminary.
world the administrative law systems are well developed and also contribute –
(see Section 1) to the stability of civil law. In developing countries, however,
administrative law is underdeveloped and does not even always exist in fact.
Of course (see again Section 1) this has a negative effect on civil law.
In the European Union the situation is more complicated. Every member of
the EU has its own system of administrative law.12 The European Court of
Justice accepts the differences of the administrative law systems of the
Member States, at least within certain conditions. For example the effectivity
of the implementation of EU law in national law must be guaranteed. But there
is an autonomy of procedural law and of the organization of the judiciary. In
the field of substantive administrative law however there is a strong tendency
towards harmonization and unification. But, in spite of the differences of the
national administrative law systems in western countries, all administrative
law systems have common features. They are governed by the principle of the
rule of law (Rechtsstaat). This principle gives guarantees for the quality and
legitimacy of administrative law.
These common features are:
3.1 The Principle of Legality
This principle is based on the principle of democracy, promotes legitimacy,

assures legal certainty and foreseeability, and means that the administration
has to act within its powers (the powers of the administration are always
limited).
3.2 Principles of Proper Administration
These principles refer to the preparation and taking of administrative deci-

sions. The most important principles are:
• no bias (including of course no corruption)

• audi alteram partem (fair hearing)
• equality
• duty to give legal reasons
• the requirement of careful preparation of an administrative decision
• honouring legitimate expectations.
The principles can be written (stated in the law) or unwritten (judge-made

law).
12 For a survey see Seerden (2007).

Private law and administrative law 143
3.3 Supervision by a Judge
The judge can be a common judge or an administrative judge. This principle

includes a right of access to a judge who is independent and can take binding
decisions within a reasonable time, unbiasedly and acting according to the
principle of audi alteram partem. Notwithstanding these principles, laid down
in the European Convention on Human Rights, there are considerable differ-
ences in the powers of the judge and intensity of testing.
4 CONCLUSION
In every country, developed or undeveloped, a well-functioning system of
administrative law (the administration complying with general principles of
proper administration, acting on the basis of the law and an accessible inde-
pendent judge) is a precondition for a well-functioning system of civil law.
Administrative law partly determines the relation between citizens (via unilat-
eral administrative decisions and civil law contracts) and increases the trust of
one party in another party, and the administration sometimes gives protection
when a contracting partner fails. In other words, a well-functioning system of
administrative law is good for the stability of private law relations. Civil law
and administrative law are in developed countries closely interlinked and
connected.
Is there a possibility of globalizing, that is, harmonizing and unifying,
administrative law in the near future? Here we have to distinguish between
non-substantive administrative law (roughly speaking the rule of law: the prin-
ciple of legality, general principles of proper administration, judicial review)
and substantive administrative law (the rights and duties of a citizen based on
an administrative decision).
Maybe, in the distant future, the idea of the rule of law can be realized in
the whole world more or less.13 But the globalizing of substantive administra-
tive law is not very realistic, even in the distant future; at best it will be on a
very limited scale.14 The differences in economic and law development
13 Kingsbury et al., supra note 11, make a distinction in: (1) procedural partici-
pation and transparency; (2) reasoned decisions; (3) review and substantive standards:
proportionality, means–ends rationality, avoidance of unnecessary restrictive means,
legitimate expectations.
14 Kingsbury et al. supra note 11, distinguish five types of global administra-
tion: (1) administration by formal international organizations; (2) administration
based on collective action by transnational networks of cooperative arrangements
between national regulatory officials; (3) distributed administration conducted by
between the countries in the world are too big. Furthermore, globalizing of
administrative law presupposes a world government. It is not likely that there
will be a world government in the near future and or even in the distant future.
As long as nations exist, there will be national administrative law. If globaliz-
ing of private law in the sense of harmonizing and unifying substantive private
law is possible in the (near) future – I cannot judge that – it is advisable to
recognize that in many cases civil law relations are influenced by national (or
regional) administrative decisions. I think this is an important impediment to
harmonizing and unifying private law on a world scale.
REFERENCES
Auby, J.-B. and L. Cluzel-Métayer (2007),’Administrative Law in France’, in R.
Seerden (ed.), Administrative Law of the European Union, Its Member States and
the United States: A Comparative Analysis, 2nd edn, Antwerp and Oxford:
Intersentia.
Kingsbury, B., N. Kirsch and R.B. Stewart (eds) (2005), The Emergence of Global
Administrative Law, http://law.duke.edu/journal/lcp.
Schröder, M. (2007), ‘Administrative Law in Germany’, in R. Seerden (ed.),
Administrative Law of the European Union, Its Member States and the United
States: A Comparative Analysis, 2nd edn, Antwerp and Oxford: Intersentia.
Seerden, R. (ed.) (2007), Administrative Law of the European Union, Its Member
States and the United States: A Comparative Analysis, 2nd edn, Antwerp and
Oxford: Intersentia.
Seerden, R. and F. Stroink (2007), ‘Administrative Law in the Netherlands’, in R.
Seerden (ed.), Administrative Law of the European Union, Its Member States and
the United States: A Comparative Analysis, 2nd edn, Antwerp and Oxford:
Intersentia.
Wauters, K. (2009, forthcoming), Rechtsbescherming en Overheidsovereenkomsten,
thesis to be defended in Maastricht, Antwerp and Oxford: Intersentia.
national regulators under treaty, network or other cooperative regimes; (4) administra-
tion by intergovernmental private arrangements; (5) administration by private institu-
tions with regulatory functions.
6. Beyond parochialism? Transnational
contextualization in constitutional
interpretation in South Africa (with
particular reference to jurisprudence of
the Constitutional Court)1
Lourens du Plessis
1 INTRODUCTORY OBSERVATIONS AND

EXPLANATIONS
According to section 39(1) of the Constitution of the Republic of South Africa,
1996, ‘[w]hen interpreting the Bill of Rights, a court, tribunal or forum …
must consider international law’ (section 39(1)(b)) and ‘may consider foreign
law’ (section 39(1)(c)). These provisions acknowledge that the Bill of Rights,
and the Constitution as a whole, is (also) embedded in a transnational reality
beyond both the geographic and the legally and constitutionally defined
precincts of ‘the Republic of South Africa’. The attention of judicial inter-
preters is moreover drawn, with supreme constitutional authority, to this
transnational context, requiring international law and allowing foreign law to
be considered in Bill of Rights (and constitutional) interpretation. The 1996
Constitution (also referred to as ‘the final Constitution’ – or simply ‘the
Constitution’) entered into force on 4 February 1997 and was preceded by –
and adopted in terms of the provisions of – the Constitution of the Republic of
South Africa, Act 200 of 1993 (also referred to as the ‘transitional’ or ‘interim
Constitution’), which, with its commencement on 27 April 1994, introduced
constitutional democracy to South Africa. Section 35(1) of this Constitution
1 A thoroughly reworked and extended version of a presentation entitled

‘Beyond Parochialism: International Law and Transnational Learning in Constitutional
Interpretation’ at a Research Workshop on ‘Lawmaking and Development of Law in a
Globalized World’ presented by the Faculty of Law, University of Stellenbosch, the Ius
Commune Research School and Trinity College, Dublin, School of Law, held at the
Stellenbosch Institute for Advanced Study, Stellenbosch, 6–8 December 2007.
145
was the essentially similar (though somewhat differently worded) predecessor

to sections 39(1)(b) and (c) of the 1996 Constitution.2
Section 39(1)(b) is to be read with section 233 of the 1996 Constitution
which requires ‘every court’ interpreting legislation to ‘prefer any reasonable
interpretation … consistent with international law over any alternative inter-
pretation that is inconsistent with international law’. A similar provision was
absent from the transitional Constitution. Section 231 of the 1996 Constitution
deals with international agreements and the binding force of the international
law emanating from them, and was preceded by sections 231(1)–(3) of the
transitional Constitution. Section 232 of the 1996 Constitution, preceded by
section 231(4) of the transitional Constitution, recognizes customary interna-
tional law as ‘law in the Republic, unless it is inconsistent with the
Constitution or an Act of Parliament’. Sections 231 and 232 of the
Constitution are not a particular focus of attention in this chapter, because,
unlike sections 39(1)(b) and (c) and 233, they have not been designed primar-
ily to aid interpretation of the Constitution (or existing law).3
The present chapter focuses on – and is indeed a case study of – how, since
1994, South African courts have performed their constitutional obligation –
and have invoked constitutional authorization – ‘to have due regard to’ (in the
words of section 35(1)) or ‘to consider’ (in the words of sections 39(1)(b) and
(c)) transnational sources of law in constitutional interpretation, and (since the
commencement of the 1997 Constitution also) to show preference for reason-
able interpretations of legislation consistent with international law. Such a case
study can offer useful insights about engagement with transnational sources in
(domestic) constitutional interpretation, because, with section 35(1) and, in
time, sections 39(1)(b) and (c) as well as section 233 in place, circumstances
in South Africa have been entirely conducive to profitable reconnoitring expe-
ditions beyond national boundaries and in ‘other man’s land’. The areas of law
that will feature prominently in this study, namely human rights and constitu-
tional law, are moreover very much alive and kicking in ‘global territory’ too.
How readily has transnational wisdom been allowed to enlarge on (and
even trump) parochial considerations in ‘domestic’ constitutional interpreta-
tion in South Africa? And have South African courts, with the Constitutional
Court at the helm, unwaveringly and consistently realized the full potential of
conditions so very propitious to the exploration and use of transnational
2 Section 35(1) required a court interpreting the provisions of the (transitional)

Bill of Rights, which was Chapter 3 of the transitional Constitution, to ‘have regard to
public international law’ and added also that it ‘may have regard to comparable foreign
case law’.
3 However, sections 231 and 232 often have to be reckoned with when the
effects of sections 39(1)(b) and (c) and 233 are assessed.
Transnational contextualization in South Africa 147
(re)sources? These specific questions will give shape to the discussion that
follows. The conditions just referred to have often enough, but not invariably,
yielded optimal exploration and exploitation of transnational (re)sources.
Factors and forces inhibiting the best possible utilization of transnational
(re)sources in South African constitutional interpretation will be identified and
some remedial action suggested.
The discussion will commence with a survey of constitutional jurispru-
dence that has earned the South African Constitutional Court a complimentary
reputation for its universalist interpretation of constitutional rights. It will be
shown that the enthusiastic court’s mistaken conflation of international and
foreign law, in the process of having ‘due regard to’ (or ‘considering’) them,
has nonetheless instilled a useful and usable sense of their shared transnation-
ality.
Instances of and patterns in recourse to international law in the
Constitutional Court’s jurisprudence on constitutional interpretation will be
considered in the second main section of this chapter, tracing the fate of
Chaskalson P’s broadminded ‘framework dictum’ in S v Makwanyane and
Another.4 The lamentable underuse of section 233 of the 1996 Constitution
will also be dealt with. An example of how international law has contributed
to the making of South African domestic law regarding resort to travaux
préparatoires in constitutional and statutory interpretation will conclude the
international law discussion.
In the third main section of this chapter constitutional comparativism in
South African constitutional interpretation will be discussed, considering
enthusiasm as well as scepticism for this endeavour and showing that the
former mood unquestionably prevails. Challenges (still) facing constitutional
comparativists in South Africa to develop theoretically sound methodologies
of comparison will also briefly be identified.
2 GATEWAY(S) TO THE ‘TRANSNATIONAL CONTEXT’

2.1 Section 39 and the Makwanyane Guidelines
Considering the constitutionality of capital punishment with reference to the

kind of transnational (re)sources envisaged in section 35(1) of the transitional
Constitution, Chaskalson P in S v Makwanyane and Another5 laid down
4 1995 (6) BCLR 665 (CC), 1995 (3) SA 391, 1995 (2) SACR 1 (CC) at para.
35.
5 1995 (6) BCLR 665 (CC), 1995 (3) SA 391, 1995 (2) SACR 1 (CC).
consequential guidelines for reliance on6 international and foreign law in

constitutional interpretation. Most pertinent among these guidelines, also
applicable to reliance on sections 39(1)(b) and (c) of the 1996 Constitution, are
the following three:
2.1.1 The first guideline
In the course of the arguments addressed to us, we were referred to books and arti-
cles on the death sentence, and to judgments dealing with challenges made to capi-
tal punishment in the Courts of other countries and in international tribunals. The
international and foreign authorities are of value because they analyse arguments
for and against the death sentence and show how Courts of other jurisdictions have
dealt with this vexed issue. For that reason alone they require our attention. They
may also have to be considered because of their relevance to s 35(1) of the
Constitution…7
Note that, according to Chaskalson P, it is competent for a South African court

construing the Constitution to consider international and foreign authorities
(he mentioned them in one breath) regardless of section 35(1) of the transi-
tional (and therefore also sections 39(1)(b) and (c) of the 1996) Constitution.
Such authorities may be considered because they are of value in their own
right and/or ‘because of their relevance to section 35(1)’ (and sections 39(1)(b)
and (c)).8 Since section 35(1) explicitly referred (and sections 39(b) and (c)
presently still refer) to interpretation of the Bill of Rights only, Chaskalson P
in actual fact laid down binding case law extending the constitutional autho-
rization to consider international and foreign law to the interpretation of
constitutional provisions not forming part of the Bill of Rights as well. To do
this is, as a matter of fact, decidedly advisable, but optional nonetheless,
except when international law binding in terms of ‘black-letter’ provisions in
sections 231 and 232 or the presumption in section 233 of the Constitution
enters the picture.9
6 ‘Having regard to’ international and foreign (case) law in the language of
section 35(1) of the transitional Constitution and ‘considering’ international and
foreign law in the language of sections 39(1), (b) and (c) of the 1996 Constitution – cf.
1 above.
7 S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391,
1995 (2) SACR 1 (CC) at para. 34.
1995 (2) SACR 1 (CC) at para. 34.
9 On international law thus binding cf. 3.2 below.
2.1.2 The second guideline (and the ‘framework dictum’)
Customary international law and the ratification and accession to international

agreements is [sic!] dealt with in s 231 of the Constitution, which sets the require-
ments for such law to be binding within South Africa. In the context of s 35(1),
public international law would include non-binding as well as binding law …
International agreements and customary international law accordingly provide a
framework within which chap 3 [the Bill of Rights] can be evaluated and under-
stood, and for that purpose, decisions of tribunals dealing with comparable instru-
ments … may provide guidance as to the correct interpretation of particular
provisions of chap 3…10
These dicta involve two findings of far-reaching significance for – and bind-
ing on all – South African courts construing the Bill of Rights (and the
Constitution). The first finding is that the words ‘international law’ in section
35(1) of the transitional (and section 39(1)(b) of the 1996) Constitution(s)
refer to binding as well as ‘non-binding’ international law.11 The second is that
international agreements and customary law ‘provide a framework within
which … the Bill of Rights … can be evaluated and understood’12 (the ‘frame-
work dictum’). The implications of these findings will be considered when the
use of international law in constitutional interpretation is discussed in more
detail below.13
2.1.3 The third guideline
In dealing with comparative law we must bear in mind that we are required to
construe the South African Constitution, and not an international instrument or the
constitution of some foreign country, and that this has to be done with due regard to
our legal system, our history and circumstances, and the structure and language of
our own Constitution … We can derive assistance from public international law and
foreign case law, but we are in no way bound to follow it.14
These words of caution have, in the post-Makwanyane case law, been sounded
repeatedly. It is notable too, as was suggested before and as Chaskalson P.
explicitly reminds us, that public international and foreign law, from which, in
1995 (2) SACR 1 (CC) at para. 35.
11 As will be argued in 3.2 below, ‘non-binding’ international law is strictly
speaking a misnomer.
1995 (2) SACR 1 (CC) at para. 35.
13 Cf. 3.3 below.
1995 (2) SACR 1 (CC) at para. 39.
terms of sections 35(1) of the transitional and 39(1)(b) and (c) of the 1996
Constitution, assistance may be derived in constitutional interpretation, are in
no way binding on any court. Chaskalson P, however, unfortunately fails to
mention that a court must also always be alert to the possibility that it may
indeed be bound to follow certain precepts of international law, because it is
required by constitutional provisions other than sections 35(1) (and 39(1)(b))
to do so. Coming to mind in this regard are section 231 of the transitional and
sections 231–3 of the 1996 Constitution. Chaskalson P’s failure to consider the
said possibility created the (probably unintended and mistaken) impression
that, as transnational driving forces in constitutional interpretation, interna-
tional and foreign law are equatable. However, this mistake, as will next be
shown, has considerably aided the identification of ‘the transnational context’
with its significant consequences for constitutional interpretation.
2.2 ‘Transnational Contextualization’
Kriegler J in Sanderson v Attorney-General, Eastern Cape15 observed that

‘[b]oth the interim and the final Constitutions … indicate that comparative
research is either mandatory or advisable’. In the scheme of section 39(1)(b)
and (c) of the 1996 (and section 35(1) of the transitional) Constitution only
comparative research is/was advisable while consideration of (or having due
regard to) international law is/was mandatory. By labelling ‘(public) interna-
tional law’16 and ‘foreign law’17 with one and the same ‘comparative
research’ tag, Kriegler J thus equated and conflated them. A critical yet
constructive (and perhaps even ‘creative’) look at this conflation posits a start-
ing-point to explain the use of the phrase ‘transnational contextualization’ in
this chapter.
The constitutionalization of international law as well as the international-
ization of constitutional law are manifestations of a globalization of public
law, and have rendered the strict boundaries between domestic constitutional
law, foreign constitutional law and international law permeable.18 However, to
recognize (and duly reckon with) their intrinsic relatedness and the conse-
quences of the vibrant interaction between them is still a far cry from doing
away with appropriate acknowledgement of the distinctiveness of each. In
constitutional interpretation in South Africa the distinction between (reliance
151997 (12) BCLR 1675 (CC), 1998 (2) SA 38 (CC) at para. 26.
16Mentioned in section 35(1) of the transitional (and in section 39(1)(b) of the
1996) Constitution.
17 Mentioned in section 35(1) of the transitional (and in section 39(1)(c) of the
1996) Constitution.
18 Bryde (2003, pp. 61–75); cf. also Peters (2007, pp. 251–308).
on) international and foreign law is best upheld because the Constitution
requires that, when interpreting the Bill of Rights, international and foreign
law are to be considered in different ways: the former must be considered
(section 39(1)(b)) while the latter may be considered (section 39(1)(b)). As
argued before – on the basis of a dictum of Chaskalson P in S v Makwanyane
and Another19 – both international and foreign law may also be considered in
the interpretation of the rest of the Constitution. However, the written consti-
tutional text (sections 39(1)(b) and (c) in particular), as well as the case law
amplifying it, still does not anticipate all possibilities. Foreign law, in the
domestic context, can never have more than persuasive force while some inter-
national law may well be as binding or prescriptive as domestic law. This sets
international and foreign law apart – and has to be reckoned with in constitu-
tional interpretation and, as a matter of fact, in the interpretation and applica-
tion of all law.
The role of international and foreign law as two distinct sources of author-
ity in South African constitutional interpretation will next be discussed seri-
atim without, however, suggesting that it is impossible to label them with a
generic tag. That both international and foreign law can and do have an effect
in constitutional interpretation is a manifestation of legal (and, in particular, a
public law) globalization, emphasizing – as was pointed out before – that a
national Constitution is also embedded in a transnational reality beyond the
geographic and the legally and constitutionally defined precincts of the juris-
diction whose supreme law it is.20 Dealing with international and foreign law
in constitutional interpretation thus amounts to a generic reading procedure
that may aptly be depicted as transnational contextualization.
3 INTERNATIONAL LAW
3.1 International Law, Globalization and South Africa’s ‘New
Constitution’
A hundred years prior to the advent of constitutional democracy in South

Africa, a court in the former Zuid-Afrikaanse Republiek declared that the
municipal law of that republic
must be interpreted in such a way as not to conflict with the principles of interna-
tional law … ‘[T]he state which disclaims the authority of international law places
34; cf. 2.1.1 above.
20 Cf. 1 above.
herself outside the circle of civilized nations.’ It is only by a strict adherence to these
recognized principles that our young state can hope to acquire and maintain the
respect of all civilized communities, and so preserve its own national indepen-
dence.21
This dictum signalled a resolve to play a constructive role in international

affairs which South Africa, during the first half of the twentieth century, as a
faithful member of the League of Nations and as a founder member of the
United Nations, indeed did.22 From the mid-1940s, however, South Africa
increasingly came under attack because of its racial policies, and quite unin-
tendedly (and unwillingly) then became a major contributor to developing a
post-World War II international law – in a ‘negative’ sense, that is, as the
‘target’ of an increasing body of treaty and customary law designed to promote
human rights and racial equality, and to facilitate the process of decoloniza-
tion.23
South Africa’s resolve during the 1990s to negotiate a peaceful and a
decided transition to constitutional democracy manifested in, amongst other
things, an openness to ‘influences from outside’ and, in particular, a positive
attitude towards international law as a potentially formative and informative
force in the legal order of a new South Africa. This unequivocal change in atti-
tude at a political level, manifesting in, amongst other things, the inclusion of
sections 35(1) in the transitional and 39(1)(b) and (c) (and 233) in the 1996
Constitution,24 resonated with the judiciary too, as is evident from the
Constitutional Court’s generous reliance on international and foreign law in
constitutional interpretation, verbalized by Chaskalson P in the guidelines laid
down in S v Makwanyane.25
A feature of most ‘new’ constitutional texts in the world today is that their
drafters have drawn heavily on international instruments – especially human
rights declarations and covenants – in formulating their provisions. For
comparative purposes a distinction between ‘old constitutions’ – predating
important international instruments such as the European Convention on
Human Rights and Fundamental Freedoms of 1950, the International
Covenant on Economic, Social and Cultural Rights of 1966 and the
21 CC Maynard et alii v The Field Cornet of Pretoria (1894) 1 SAR 214 at 223.
22 Dugard (2000, pp. 19–20).
23 ‘While apartheid undermined and discredited the law of South Africa, it
succeeded, perversely, in injecting notions of racial equality, self-determination and
respect for human rights into an international legal order that in 1945 had few devel-
oped rules on these subjects.’ Dugard (2000, p. 21).
24 Cf. 1 above.
25 1995 (6) BCLR 665 (CC), 1995 (3) SA 391, 1995 (2) SACR 1 (CC) at paras
34, 35 and 39. Cf. 2.1 above and, in general, du Plessis (2007b, pp. 309–40) at p. 310.
International Covenant on Civil and Political Rights of 1966 – and ‘new

constitutions’ drafted with heavy reliance on these and similar instruments
may ‘be particularly fruitful, even if it might be unfamiliar’.26 The German
Constitution, generally regarded as a ‘new’ constitution, will, in terms of this
distinction, for instance, be an ‘old’ constitution.
The South African Constitution, and its Bill of Rights in particular, is a
mini-encyclopaedia of international human rights law gleaned from multifari-
ous international declarations, covenants and conventions.27 Since its very
inception the South African Constitution has thus been a product of interna-
tional law to quite a decisive extent, and for this reason alone international law
has an important role to play in its interpretation, as the eminently sensible
inclusion of provisions such as sections 39(1)(b) and (c) suggests.28 The
Constitutional Court, in certifying compliance of the written text of the 1996
Constitution with the XXXIV Constitutional Principles in Schedule 4 to the
transitional Constitution,29 considered Constitutional Principle II requiring
that ‘[e]veryone shall enjoy all universally accepted fundamental rights, free-
doms and liberties’ and concluded that the text it was called upon to certify –
and which eventually became the Constitution of the Republic of South Africa,
1996 – complied with this standard as a minimum and in some instances even
went beyond it.30
The inclusion in a nation’s supreme constitution of provisions derived from
international documents and instruments is a direct and most powerful way of
26 Bryde (2005–06, pp. 203–19) at p. 208.

27 In addition to the instruments already mentioned the Universal Declaration of
Human Rights of 1948, the American Convention on Human Rights of 1969, the
African Charter on Human and Peoples’ Rights of 1981, the International Covenant on
the Elimination of all Forms of Racial Discrimination of 1966, the Convention on the
Elimination of all forms of Discrimination against Women of 1979 and the Convention
on the Rights of the Child of 1989 (CRC) were also freely used – du Plessis (2007b,
pp. 309–40) at p. 313.
28 And previously section 35(1) of the transitional Constitution. Cf. 1 above.
29 Section 71 of the transitional Constitution required such certification as part
of the process of adopting the 1996 Constitution. There were two Certification
Judgments. The Constitutional Court referred the first text submitted for certification
back to the Constitutional Assembly holding that, in some respects, it did not comply
with the Constitutional Principles: Certification of the Constitution of the Republic of
South Africa, 1996, In re: Ex parte Chairperson of the Constitutional Assembly 1996
(10) BCLR 1253 (CC), 1996 (4) SA 744 (CC). The court thereafter, in a second judg-
ment, certified an improved text: Certification of the Amended Text of the Constitution
of the Republic of South Africa, 1996, In re: Ex parte Chairperson of the Constitutional
Assembly 1997 (1) BCLR 1 (CC), 1997 (2) SA 97 (CC).
30 Certification of the Constitution of the Republic of South Africa, 1996, In re:
Ex parte Chairperson of the Constitutional Assembly 1996 (10) BCLR 1253 (CC),
1996 (4) SA 744 (CC) at paras 48–51.
incorporating international (human rights) law in municipal law. It gives rise

to a somewhat curious situation, though, where constitutional provisions with
their origins in international law are required to be construed considering
international law. Recognized procedures for and aids to the construction of
international law – for instance, Articles 31–3 of the Vienna Convention on the
Law of Treaties – may be relied on to determine what ‘international law’ in a
given situation and/or with reference to a specific issue is. This does not,
however, mean that the South African Constitution and Bill of Rights them-
selves have to be interpreted as if they were sources of international law: they
are to be construed in accordance with recognized procedures and reading
strategies for the interpretation of enacted domestic law, duly honouring the
Constitution’s status as supreme law.31 In the South African context a consti-
tutional provision derived from an international law source could thus be
construed to have a meaning different from its accepted meaning in interna-
tional law. It is, as a matter of fact, conceivable that considering (which also
means ‘weighing the merits of’32) international law may indeed give rise to
such a differing construction of a human rights provision in a domestic bill of
rights.
3.2 ‘Binding’ and ‘Non-binding’ International Law
Sections 39(1)(b) and (c) of the South African Constitution (referred to previ-
ously33) are provisions not commonly included in constitutions, and reliance
on international and foreign law in constitutional interpretation is possible
without such constitutional authorization (which does not, however, mean that
the inclusion of the said provisions in the South African Constitution is
insignificant). More commonly and typically, constitutions provide for the
recognition – and incorporation into domestic law – of (treaty and customary)
international law. The ‘black-letter provisions’ of the South African
Constitution geared to achieve these effects are the previously referred to
sections 231 and 232. International law thus recognized and incorporated is
sometimes referred to as ‘binding’ international law to distinguish it from
‘non-binding’ international law, which is the vast body of international law not
brought to bear in the domestic legal system by virtue of sections 231 and 232.
31 Cf., however, the South African Constitutional Court’s (contrary) view on the
status of the Vienna Convention on the Law of Treaties in constitutional interpretation
in S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391 (CC),
1995 (2) SACR 1 (CC) at para. 16 – discussed below.
32 The Shorter Oxford English Dictionary on CD-ROM 5th edn Version 2.0
(2002), Oxford University Press.
33 In 1 above.
In accordance with Chaskalson P’s phenomenal finding in S v Makwanyane

and Another,34 such ‘non-binding’ international law was ‘public international
law’ for purposes of section 35(1) of the transitional Constitution and it may
safely be assumed that it has remained ‘international law’ for purposes of
section 39(1)(b) of the 1996 Constitution too.35
Strictly speaking the term ‘non-binding international law’ is a ‘South
Africanist misnomer’, for there is no really non-binding international law.36
The constitutional injunction to consider international law in Bill of Rights
interpretation, for instance, makes all international law ‘binding’, not in the
sense that it must straightaway be observed as law, but to the extent that due
regard must be had to it. The presumption in section 233 of the Constitution,
which will be discussed below37, could have a similar effect. In the discussion
that follows the term ‘non-binding’ international law, coined by the
Constitutional Court in Makwanyane,38 will thus be used, with the necessary
reservations, to signify international law not recognized as and incorporated
into domestic law by virtue of sections 231 and 232 of the Constitution.
3.3 Looking Critically at the Framework Dictum in Makwanyane
The framework dictum, after having authorized resort to ‘binding’ as well as

‘non-binding’ international law in constitutional interpretation (the matter just
discussed),39 proceeds with the observation that binding as well as non-bind-
ing international law provides a framework within which the Bill of Rights
‘can be evaluated and understood’.40 This part of the dictum reflects a decided
readiness to have recourse to international law in domestic constitutional inter-
pretation. It is this attitude, combined with a very broad understanding of what
‘international law’ in constitutional interpretation entails,41 that has earned the
1995 (2) SACR 1 (CC) at para. 35.
35 Cf. 2.1.2 above.
36 Du Plessis (2007b, pp. 309–40) at p. 312.
37 Cf. 3.7 below.
1995 (2) SACR 1 (CC) at para. 35.
39 Cf. 3.2 above.
1995 (2) SACR 1 (CC) at para. 35. Mokgoro, in a similar vein, held that the
Constitution ‘requires courts to proceed to public international law and foreign case
law for guidance in constitutional interpretation, thereby promoting the ideal and inter-
nationally accepted values in the cultivation of a human rights jurisprudence for South
Africa’ – S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391,
1995 (2) SACR 1 (CC) at para. 304.
41 Cf. 3.2 above.
South African Constitutional Court a complimentary reputation for its

‘universalist interpretation’ of constitutional rights’.42
Chaskalson P cited John Dugard43 as authority for his finding, reflected in
the first part of the framework dictum, that – informed by section 35(1) of the
transitional Constitution (and section 39(1)(b) of the 1996 Constitution) – both
‘binding’ and ‘non-binding’ (public) international law may be invoked in
constitutional interpretation. An implication of this finding is that just about
any source of international law may be considered in constitutional interpreta-
tion – also, for instance, the European Convention on Human Rights and
Fundamental Freedoms, to which South Africa can never become a party.
Neville Botha and Michéle Olivier44 contend that Chaskalson P incorrectly
relied on the writing of Dugard that he cited in support of the finding just
described. What Dugard, according to the authors, probably had in mind were
the (less than ‘free for all’) ‘traditional sources of international law’ recog-
nized in Article 38(1) of the Statute of the International Court of Justice, and
Dugard apparently confirmed this in a subsequent article.45 Chaskalson P thus
seems to have misread the source on which he relied and laid down binding
(or prescriptive) case law per errorem, as it were. This piece of judge-made
law has nonetheless turned out to be of considerable consequence in the evolu-
tion of South Africa’s domestic human rights law, drawing on sources of inter-
national law in a distinctly direct and monistic manner.46 As will be shown
below47 the Constitutional Court in Azanian People’s Organization (AZAPO)
and Others v President of the Republic of South Africa and Others48 actually
retreated from the Makwanyane position, but in time this turned out to be an
ad hoc and temporary deviation, and openness to and generous reliance on
international law have mostly informed the default (judicial) disposition in
constitutional interpretation in South Africa. More, next, about this (tempo-
rary) retreat.
3.4 The Framework Dictum Compromised? – AZAPO
The Constitutional Court’s judgment in the politically controversial and dilem-

matic Azanian People’s Organization (AZAPO) and Others v President of the
42 Peters (2007, pp. 251–308) at pp. 300–301.

43 Dugard (1994, pp. 171–95).
44 Botha and Olivier (2004, pp. 42–77) at p. 46.
45 Dugard (1995, pp. 241–51).
46 Cf. also Motala and Ramaphosa (2002, p. 37).
47 Cf. 3.4 below.
48 1996 (8) BCLR 1015 (CC), 1996 (4) SA 672 (CC).
Republic of South Africa and Others,49 with Mahomed DP speaking on behalf

of a unanimous court, came on 25 July 1996, one year, one month and 19 days
after Makwanyane50 had been handed down. Save for the absence of
Kentridge AJ in AZAPO, the panels of concurring judges in the two cases were
identical. Not only did AZAPO retreat from Makwanyane’s generous reliance
on international law in constitutional interpretation, but it arguably also
reversed the court’s position on international law as a framework within which
the Bill of Rights ‘can be evaluated and understood’.51 Ironically, AZAPO was
probably not intended to have any of these adverse effects, but instead focused
on negotiating the very thorny political dilemma of how to deal, in a constitu-
tionally accepted manner, with amnesty for the perpetration of atrocities by
both erstwhile protagonists and antagonists of apartheid.
An unusual Postamble concluding South Africa’s transitional Constitution
emphasized the need for national reconciliation and a healing of the divisions
of the past, and required amnesty to be granted ‘in respect of acts, omissions
and offences associated with political objectives and committed in the course
of the conflicts of the past’. The Promotion of National Unity and
Reconciliation Act52 was subsequently enacted, stipulating conditions – and
putting in place procedures to apply – for amnesty. An Amnesty Committee
was authorized to grant perpetrators of human rights violations immunity from
both criminal prosecution and civil liability, provided that their acts of viola-
tion could be associated with a political objective (as defined in the Act) and
that all relevant facts about such acts had been fully disclosed. Section 20(7)
of the Act provided that individual immunity against criminal and civil liabil-
ity would be consequent upon a successful application for amnesty, and
discharged the state – and other bodies, organizations or persons – from (vicar-
ious) civil liability for acts thus amnestied.
AZAPO, the Applicant, challenged the constitutionality of Section 20(7)
alleging that it breached every person’s right (guaranteed in section 22 of the
transitional Constitution) ‘to have justiciable disputes settled by a court of law
or … another independent and impartial forum’.53 AZAPO contended that a
state is required by international law, and a series of Geneva Conventions in
particular, to prosecute the perpetrators of gross human rights violations, and
49 1996 (8) BCLR 1015 (CC), 1996 (4) SA 672 (CC). On the politically contro-
versial and dilemmatic dimensions of this case cf. du Plessis (2007a, pp. 51–64).
50 S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391
(CC), 1995 (2) SACR 1 (CC) at para. 16.
1995 (2) SACR 1 (CC) at para. 35 per Chaskalson and at para. 304 Mokgoro.
52 34 of 1995.
53 Presently section 34 of the 1996 Constitution.
that section 20(7) thus breached international law.54 In terms of the said
Conventions: ‘The High Contracting Parties undertake to enact any legislation
necessary to provide effective penal sanctions for persons committing, or
ordering to be committed, any of the grave breaches …’
The Constitutional Court (per Mahomed DP) thought that ‘[t]he issue
which falls to be determined in this Court is whether section 20(7) of the Act
is inconsistent with the Constitution’ and ‘the enquiry as to whether or not
international law prescribes a different duty is irrelevant to that determina-
tion’.55 Section 35(1) of the transitional Constitution (the predecessor to
section 39(1)(b) of the 1996 Constitution), the court thought, directs it ‘only to
“have regard” to public international law if it is applicable to the protection of
the rights entrenched in the chapter’ (that is the transitional Bill of Rights).56
This meant that only international law ‘binding’ in terms of black-letter consti-
tutional law qualified to be ‘(public) international law’ as envisaged in section
35(1) of the transitional (and section 39(1)(b) of the 1996) Constitution. This
is a far-reaching attenuation (if not reversal) of (the legal effect of) Chaskalson
P’s framework dictum in Makwanyane.57 Mahomed DP did not treat ‘binding’
as well as ‘non-binding’ international law as a framework within which the
Bill of Rights ‘can be evaluated and understood’, but in his (and the court’s)
view only ‘binding’ international law passing muster in terms of black-letter
constitutional law qualified to be considered when interpreting the Bill of
Rights. The international framework for Bill of Rights interpretation was thus
significantly truncated, actually rendering provisions like section 35(1) and
section 39(1)(b) superfluous, because a court, tribunal or forum is at any rate
bound to follow ‘binding’ international law; there is no need for the said provi-
sions to encourage it to do so.
3.5 Back to the Framework: Grootboom
Fortunately, AZAPO has, within the bigger picture of the Constitutional
54 Azanian People’s Organization (AZAPO) and Others v President of the

Republic of South Africa and Others 1996 (8) BCLR 1015 (CC), 1996 (4) SA 672 (CC)
at para. 25.
at para. 26.
at para. 27.
1995 (2) SACR 1 (CC) at para. 35. Cf. also Mokgoro J in S v Makwanyane and Another
1995 (6) BCLR 665 (CC), 1995 (3) SA 391, 1995 (2) SACR 1 (CC) at para. 304.
Court’s case law history, not irreversibly or even significantly derogated from
the court’s ‘universalist’ attitude towards international law in constitutional
interpretation,58 and Government of the RSA and Others v Grootboom and
Others59 – a key judgment on the justiciability of socioeconomic rights –
tellingly demonstrated this. At issue in Grootboom was the section 26 consti-
tutional right to adequate basic shelter or housing, pending the obtainment of
permanent accommodation, of 510 children and 390 adults evicted from their
informal homes situated on private land earmarked for formal low-cost hous-
ing.
In construing section 26, which guarantees everyone’s right to adequate
housing60 and enjoins the state to take reasonable legislative and other
measures within its available resources to achieve the realization of this
right,61 the court per Yacoob J considered, amongst other things, sources of
international law, and quoted Chaskalson P’s framework dictum in
Makwanyane62 with approval, adding a significant qualification:63
The relevant international law can be a guide to interpretation but the weight to be
attached to any particular principle or rule of international law will vary. However,
where the relevant principle of international law binds South Africa, it may be
directly applicable.
The court thus honoured – and, bearing AZAPO64 in mind indeed restored –
the distinction between international law binding on South Africa and other
sources of international law that must, in addition to binding law, be consid-
ered in the interpretation of the Bill of Rights. The court concentrated its
inquiry mainly on Articles 11.1 and 2.1 of the International Covenant on
Economic, Social and Cultural Rights (ICESCR) and pointed out differences
of interpretive significance between the formulation of the provisions of the
Covenant and section 26 of the South African Constitution.65 However, the
court also thought that the relevant general comments issued by the United
Nations Committee on Economic, Social and Cultural Rights regarding the
58 Cf. 3.3 above.

59 2000 (11) BCLR 1169 (CC), 2001 (1) SA 46 (CC).
60 Section 26(1).
61 Section 26(2).
(CC), 1995 (2) SACR 1 (CC) at para. 35.
63 Government of the RSA and Others v Grootboom and Others 2000 (11) BCLR
1169 (CC), 2001 (1) SA 46 (CC) at para. 26.
Republic of South Africa and Others 1996 (8) BCLR 1015 (CC), 1996 (4) SA 672 (CC).
1169 (CC), 2001 (1) SA 46 (CC) at para. 28.
interpretation of the ICESCR ‘constitute a significant guide to the interpreta-

tion of section 26’.66 The purpose of the Committee, consisting of 18 inde-
pendent experts, is to assist the United Nations Economic and Social Council
to carry out its responsibilities relating to the implementation of the ICESCR.
The court allowed itself to be guided by the Committee’s general comments in
order to determine what the notion of ‘a minimum core’ of socioeconomic
rights entails. Thus the Makwanyane standard on recourse to non-binding
international law was not only restored but also further developed to authorize
reliance on a text very much suggested by common sense but not necessarily
prescriptive as international law.
3.6 Some Other Judgments Significant for Engagement with

International Law in Constitutional Interpretation
Makwanyane,67 AZAPO68 and Grootboom69 constitute a particular (and prob-

ably the leading) storyline in the case law narrative of the Constitutional
Court’s reliance on international law in constitutional interpretation. Not
exactly within – but nonetheless supporting – this storyline are a handful of
judgments of the court evincing a certain adjudicative mindset in dealing with
human rights issues which are prominent in international law too. Ultimately
such a frame of mind is relevant to the manner in which the court considers
international law both for purposes of section 39(1)(b) of the Constitution and
for instances of constitutional interpretation beyond that.
The minority judgment of Sachs J in Ex parte Gauteng Provincial
Legislature, In re: Dispute Concerning the Constitutionality of Certain
Provisions of the Gauteng School Education Bill of 1995,70 for instance,
with which the majority of the Constitutional Court did not disagree, demon-
strated how measured reliance on (relevant) international law can contribute
to the resolution of a controversial issue or issues in domestic politics – in
casu draft legislation that, according to the petitioners in the case, fell foul
of guarantees of school learners’ right to instruction, where reasonably prac-
tical, in the language of their choice71 and a right to establish, where practi-
1169 (CC), 2001 (1) SA 46 (CC) at para. 29.
1995 (2) SACR 1 (CC).
1169 (CC), 2001 (1) SA 46 (CC).
70 1996 (4) BCLR 537 (CC), 1996 (3) SA 165 (CC).
71 This right was guaranteed in section 32(b) of the transitional Constitution.
cable, educational institutions based on a common culture, language or reli-

gion.72
Sachs J considered the petitioners’ contentions in the broad domestic histor-
ical and constitutional context73 and made four assumptions in their favour. He
then contextualized these assumptions and counterbalanced them with refer-
ence to three significant considerations highlighted by the Constitution.74 This
was followed by an assessment of the actual constitutional provision for the
entrenchment of the rights allegedly infringed, in terms of six universally
accepted principles gleaned from sources of international law on the protec-
tion of minorities.75 These were situated in the domestic context. The thus duly
contextualized interaction of international and municipal human rights law on
the issues in dispute led Sachs J to the conclusion that the petitioners’ misgiv-
ings were unfounded.
International law looms large where the protection of the rights of vulnera-
ble individuals finding themselves on foreign soil is at issue. In Mohamed and
Another v President of the RSA and Others76 the Constitutional Court dealt
with the unlawful handing over of a foreign national to the United States of
America to be prosecuted for his alleged involvement in the bombing of the
United States Embassy in Tanzania. The court, strongly condemning this
extradition disguised as the deportation of an unlawful immigrant, adamantly
(though alas belatedly) insisted on meticulous compliance with due process in
such instances, which in casu would have had to include procuring an under-
taking from the US government that the foreign subject would not be executed
if eventually convicted in the US.77
Kaunda and Others v President of the RSA and Others (2),78 on the other
hand, was, like AZAPO,79 politically dilemmatic. Sixty-nine applicants, all
72 Provided that there shall be no discrimination on the ground of race. This right
was guaranteed in section 32(c) of the transitional Constitution.
73 Ex parte Gauteng Provincial Legislature, In re: Dispute Concerning the
Constitutionality of Certain Provisions of the Gauteng School Education Bill of 1995
1996 (4) BCLR 537 (CC), 1996 (3) SA 165 (CC) at paras. 55–68.
76 2001 (7) BCLR 685 (CC), 2001 (3) SA 893 (CC).
77 Mohamed and Another v President of the RSA and Others 2001 (7) BCLR 685
(CC), 2001 (3) SA 893 (CC) at para. 68.
78 2004 BCLR 1009 (CC), 2005 (4) SA 235 (CC).
South African nationals, arrested and detained in Zimbabwe and then charged
with various offences related to their alleged complicity in a plot to overthrow
the government of Equatorial Guinea, sought the South African government’s
intervention on their behalf to secure their release or their extradition to South
Africa, and to protect them against assault and detention in atrocious condi-
tions while still in Zimbabwe (and the risk of a death penalty if eventually
extradited to Equatorial Guinea).
A majority of the Constitutional Court per Chaskalson CJ citing section 232
of the Constitution – thereby to signal reliance on customary international law
– construed the right to diplomatic protection of these South African nationals
on foreign soil, narrowly holding that ‘[t]raditionally, international law has
acknowledged that States have the right to protect their nationals beyond their
borders but are under no obligation to do so.’80 The court attached consider-
able weight to the opinion of a Special Rapporteur of the International Law
Commission on the meaning of ‘diplomatic protection’,81 concluding that
under current (customary) international law diplomatic protection is not recog-
nized and cannot be enforced as a human right. Diplomatic protection
remained the prerogative of the state, to be exercised at its discretion.82
3.7 An Underused Presumption
In section 233 of the Constitution, a long-standing common law presumption

of statutory interpretation has been constitutionalized.83 ‘Every court’ inter-
preting legislation is required to ‘prefer any reasonable interpretation …
consistent with international law over any alternative interpretation that is
inconsistent with international law’. Erasmus correctly points out that section
233, unlike the conventional presumption, is of effect even where there is no
ambiguity in the language of the legislation to be construed – all that is needed
for the section to take effect is the existence of international law on the topic
or issue under consideration against which various alternative interpretive
outcomes can be assessed.84
Though it is a rather helpful and significant interpretive aid, section 233
has, since the commencement of the Constitution in 1997, only been referred
80 Mohamed and Another v President of the RSA and Others 2001 (7) BCLR 685
(CC), 2001 (3) SA 893 (CC) at para. 23.
81 Kaunda and Others v President of the RSA and Others (2) 2004 BCLR 1009
(CC), 2005 (4) SA 235 (CC) at paras 25–8.
(CC), 2005 (4) SA 235 (CC) at para. 29.
83 Du Plessis (2002, p. 173).
84 Erasmus (2003, pp. 157–81) at p. 175.
to twice in constitutional jurisprudence, namely (almost in passing) by Sachs

J in S v Baloyi85 to justify his preferred interpretation of a legislative provi-
sion, and by Chaskalson CJ in Kaunda and Others v President of the RSA and
Others (2).86 Section 233 explicitly mentions the interpretation of legislation
(only), but the Constitutional Court, in the latter judgment, had little difficulty
in concluding that the presumption it creates ‘must apply equally to the provi-
sions of the Bill of Rights and the Constitution as a whole’.87 The court set
section 233 on par with section 39(1)(b) of the Constitution, and that can only
be done if ‘international law’ means the same in both sections. The effect of
section 233 will then be that, in the interpretation of the Constitution (includ-
ing the Bill of Rights), due regard to ‘non-binding’ international law will never
be optional: such law will, as a matter of fact, apply whenever the presump-
tion is not rebutted! (‘Binding’ international law in terms of sections 231 and
232, of course, applies at any rate.)
One effect of this far-reaching interpretation is that section 39(1)(b) stands to
be rendered superfluous, since section 233 applies to the Bill of Rights too.
There are three possible ways of avoiding this consequence. (i) First, section 233
can be understood to refer to ‘binding’ international law only. (ii) Second, the
section can be understood as applying to the interpretation of legislation only
(and not to interpretation of the Constitution too). (iii) Third, and by virtue of the
maxim generalia specialibus non derogant,88 section 39(1)(b) can be under-
stood as a specific prior provision, pertaining to the Bill of Rights (only), and
therefore left unaffected by section 233, a general provision similar in substance
but pertaining to the Constitution as a whole. What the Constitutional Court said
about section 233 in the Kaunda case89 rules out (ii) above, does not rule out but
also does not strongly support a possibility as restricted as (i) above, and is most
likely to be understood as suggesting preference for (iii) above.
Section 233 can of course be invoked only where, in construing legislation
(or the Constitution), there is indeed international law against which alterna-
tive interpretive outcomes can be assessed. On the other hand, not to observe
the presumption when such international law is at hand is an error in law, as
Gerhard Erasmus90 quite correctly points out with reference to the judgment
of the Supreme Court of Appeal (per Lewis JA) in A M Moola Group Ltd and
85 2000 (1) BCLR 86 (CC), 2000 (2) SA 245 (CC) at para. 13.
87 Kaunda and Others v President of the RSA and Others (2) 2004 (10) BCLR
1009 (CC), 2005 (4) SA 235 (CC) at para. 33.
88 Du Plessis (2002, pp. 73–4).
89 Kaunda and Others v President of the RSA and Others (2)2004 (10) BCLR
1009 (CC), 2005 (4) SA 235 (CC) at para. 33.
90 Erasmus (2003, pp. 157–81) at p. 175.
Others v Commissioner, South African Revenue Service and Others.91 Given

the paucity of references to section 233 in the case law, there is every reason
to suspect that South African courts commit this error quite regularly!
3.8 Travaux Préparatoires in Constitutional Interpretation – an

Example of International Law ‘Making’ Domestic Constitutional
Law
As was shown previously, the Constitutional Court in S v Makwanyane and

Another92 per Chaskalson P laid down binding guidelines for recourse to inter-
national law in constitutional interpretation (especially in terms of section
39(1)(b) of the Constitution), thereby creating or forming new law, arguably
including (new) international law. That international law can also contribute to
the making of domestic law is illustrated by the court’s findings in
Makwanyane about resort to travaux préparatoires in constitutional – and
statutory – interpretation.
The court had to decide whether it could refer to the drafting history of the
transitional Constitution to establish why no eo nomine reference to capital
punishment was included in the written text of that Constitution. Capital
punishment was a profoundly controversial issue among the negotiators and
drafters of the transitional Constitution, and they eventually opted for the
‘Solomonic solution’93 of not mentioning capital punishment in that
Constitution at all, and leaving it entirely to the Constitutional Court to cast
the die on its constitutionality.94 Chaskalson P thus thought it necessary in
Makwanyane to take cognizance of the genesis of the text of the transitional
Constitution so as to come to grips with the interpretive implications of the
constitution-makers’ silence on the issue of capital punishment.
In seeking to justify such reliance on ‘preceding deliberations’, the court
was faced with a South African common law on statutory interpretation prone
to pit itself against – but not wholly excluding – reliance on preparatory mate-
rial in the interpretation of enacted law.95 Proceeding beyond conventional
91 2003 (6) SA 244 (SCA).

92 1995 (6) BCLR 665 (CC); 1995 (3) SA 391 (CC), 1995 (2) SACR 1 (CC) –
cf. 2.1 above.
93 S v Makwanyane and Another 1995 (6) BCLR 665 (CC); 1995 (3) SA 391
(CC), 1995 (2) SACR 1 (CC) at paras 22 and 25.
94 Capital punishment is, of course, not referred to in the 1996 Constitution
either, but the reason for this ‘silence’ is that S v Makwanyane and Another 1995 (6)
BCLR 665 (CC), 1995 (3) SA 391 (CC), 1995 (2) SACR 1 (CC) is taken to be the
authority that has excluded the possibility of capital punishment once and for all.
(CC), 1995 (2) SACR 1 (CC) at para. 14; cf. also du Plessis (2002, pp. 268–9).
common law restraints, Chaskalson P argued that reliance on travaux prépara-

toires is appropriate in constitutional interpretation, because it is accepted in
other ‘countries in which the Constitution is … supreme law’ – and he gave
examples.96 ‘The European Court of Human Rights and the United Nations
Committee on Human Rights,’ Chaskalson P continued, ‘allow their delibera-
tions to be informed by travaux préparatoires.’97
He cited Article 32 of the Vienna Convention on the Law of Treaties of
1969 as authority for the contention that travaux préparatoires may thus be
relied on – also in constitutional interpretation. This Vienna ‘Convention on
Conventions’ is ‘international law’ as contemplated in section 35(1) of the
transitional (and section 39(1)(b) of the 1996) Constitution, but Articles 31–3
of the Convention are international law applicable (only or, at least, primarily)
to the interpretation of international documents and instruments (‘treaties’)
and not to the interpretation of a domestic constitution. However, since the
Constitutional Court, as South Africa’s highest court in constitutional matters,
has held, albeit probably per errorem, that the ‘Convention on Conventions’
may be relied on to guide interpretation of South Africa’s Constitution and Bill
of Rights, this has become the law (of interpretation) as it stands in South
Africa – an entirely persuasive international law-text, turned into prescriptive
domestic law through judicial lawmaking.
3.9 Conclusions Pertinent to the Role of International Law
That international law is readily – and often enthusiastically – invoked in

constitutional interpretation in South Africa does not mean that it is always
brought into play with unwavering keenness or optimal effect. There is some-
times a reluctance among domestic constitutional actors to assume that inter-
national law readily trumps state constitutions.98 This happens all over the
world and may sometimes be the case in South Africa too. However, from the
case law overview above, it appears that especially (i) deficiencies in the judi-
cial capacity to deal with international law and (ii) (in some instances) a
preponderance of domestic political pressure(s) have from time to time
impacted adversely (though not fatally) on judicial dealings with international
law in South Africa.
Deficient capacity – (i) above – accounts for a disinclination in constitutional
adjudication to ‘access’ international law directly through the ‘black-letter’ or
96S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391
(CC), 1995 (2) SACR 1 (CC) at para. 16.
(CC), 1995 (2) SACR 1 (CC) at para. 16.
98 Peters (2007, pp. 251–308) at pp. 282–5.
‘hard law’ provisions in sections 231–3. Adjudicators have preferred to

‘consider’ international law – by virtue of section 39(1)(b) – instead. The
lamentable underuse of section 233 as a (potentially) valuable aid to statutory
and constitutional interpretation has been (as was shown) a consequence of
this preference.99 Strictly speaking section 39(1)(b) of the Constitution is not
applicable to the interpretation of enacted law other than the Bill of Rights
(Chapter 2 of the Constitution): the words ‘[w]hen interpreting the Bill of
Rights’ introduce the provision. This means that sections 231–3 – and not
section 39(1)(b) – are actually the appropriate provisions to put international
law on stage when ‘other law’, including provisions of the Constitution
outside of Chapter 2, are to be construed.
Inadequate judicial capacity in dealing with international law has, however,
not just been damaging, but has, as was shown, resulted in some very creative
lawmaking (albeit per errorem).100 Mistakes (of law) made in the process
have, as a matter of fact, been conducive (and by no means detrimental) to
reliance on international law in constitutional interpretation. These fortu-
itously favourable outcomes can, of course, not justify inept dealings with
international law in an endeavour as crucial as constitutional adjudication.
As far as (ii) above is concerned, AZAPO101 illustrated how domestic polit-
ical pressures can compromise a court’s (and in casu particularly the
Constitutional Court’s) otherwise favourable and generous dealings with inter-
national law.102 AZAPO has been described as a ‘political’ (and politicized)
judgment, thereby to try to explain the Constitutional Court’s by and large
unsatisfactory treatment of international law in that particular case.103 But this
is an oversimplified assessment. Degree-wise, Makwanyane104 surely was
every bit as ‘political’ as AZAPO was, for the Constitutional Court was
expected to perform a function (and, in fact, to cast a die) that politicians were
(due to insurmountable differences among themselves) not up to – and the
court obliged wholeheartedly while, at the same time, it seized the opportunity
to articulate its stand on key issues involved in constitutional interpretation
and adjudication, including appropriate reliance on international law. Human
rights adjudication involving constitutional review is at any rate always ‘polit-
99 Cf. 3.7 above.

100 Cf. 3.3 and 3.8 above.
102 Du Plessis (2007b, pp. 309–40) at pp. 337–8. .
103 This is the gist of an article by Motala (1996, pp. 29–59); cf. also Botha and
Olivier (2004, pp. 42–51).
1995 (2) SACR 1 (CC).
ical’.105 Makwanyane ended up as a judicial tour de force – a ‘bold assertion

of constitutional rights and powers’.106 This came about because the
Constitutional Court was the Solomon authorized politically to resolve a
controversy of significant proportions. What followed was a trailblazing and
directional judgment, the outcome of which would, up to this day, probably
not receive majority support in a popular referendum! And international law
was among the vital forces occasioning such an outcome.
Dealing with the constitutional tenability of amnesty for the perpetration of
atrocities on political rivals during the apartheid era in South Africa, AZAPO,
on the other hand, touched a very raw political nerve. Amnesty was central to
the politically negotiated truth and reconciliation process in South Africa,
holding the key to a ‘new’ democracy memorializing the past without allow-
ing it to eclipse the future. Had the Constitutional Court in AZAPO relied on
international law to the same degree as it did in Makwanyane, it would have
had to conclude that section 20(7) of the Promotion of National Unity and
Reconciliation Act was unconstitutional. Had it then, pursuant to this finding,
struck down the impugned provision, the truth and reconciliation process
would certainly have collapsed, with ghastly consequences for the more
encompassing project of a closely negotiated, peaceful transition to constitu-
tional democracy in South Africa.
As was pointed out previously,107 AZAPO did not irreversibly derogate
from the Constitutional Court’s generous approach to the use of international
law in constitutional interpretation, as the Grootboom judgment108 – dealing
with the highly politicized issue of adjudicating socioeconomic rights – so
tellingly demonstrated.
In Kaunda109 a political dilemma once again beset the Constitutional Court.
Complex relations with a neighbouring state were involved. The court’s polit-
ical predicament was reflected by its atypical restraint to draw on – and its
unduly narrow construction of – international law sources. Political pressures
once more took their toll!
On the other hand, resort to international law when seized with a (domes-
tic) political controversy can also be a source of considerable instruction –
especially if the controversy in question has relevance in international law as
105 Cf. e.g. Klug (1997, p. 185) at p. 194.

106 Klug (1997, p. 185) at p. 194.
107 Cf. 3.5 above.
1169 (CC), 2001 (1) SA 46 (CC).
(CC), 2005 (4) SA 235 (CC).
well. Sachs J’s minority judgment in the Gauteng Schools case,110 which
considered the implications of self-determination for minority groups in a
crucial area, is a telling example of how political controversy can also prompt
a carefully crafted (and instructive) judgment. The Mohamed case, in its turn,
illustrated that adjudication with appreciable consequence beyond the bound-
aries of a domestic jurisdiction can afford a domestic court the opportunity to
convey – ‘for the world to know’ – what it intends doing to maintain, within
its area of jurisdiction, constitutional democracy in a manner earning it the co-
operation and, in time, also the respect of its peers in other jurisdictions.
4 FOREIGN LAW AND CONSTITUTIONAL

COMPARATIVISM
4.1 Constitutional Comparativism: Believers and Disbelievers
Generally speaking South African courts (and the Constitutional Court in

particular) have so far been as open to the use of comparative (foreign) author-
ities as they have been to reliance on international law. In K v Minister of
Safety and Security111 O’Regan J eloquently verbalized this openness, disci-
plined by level-headedness, as follows:
There can be no doubt that it will often be helpful for our courts to consider the
approach of other jurisdictions to problems that may be similar to our own. Counsel
for the respondent argued that because our common-law principles of delict grew
from the system of Roman-Dutch law applied in Holland, a province of the
Netherlands, in the 17th century, we should not have regard to judgments or reason-
ing of other legal systems. He submitted that the conceptual nature of our law of
delict, based as it is on general principles of liability, is different from the casuistic
character of the law of torts in common-law countries. These differences, he submit-
ted, render reliance on such law dangerous. Counsel is correct in drawing our atten-
tion to the different conceptual bases of our law and other legal systems. As in all
exercises in legal comparativism, it is important to be astute not to equate legal
institutions which are not, in truth, comparable. Yet in my view, the approach of
other legal systems remains of relevance to us.
‘It would seem unduly parochial to consider that no guidance, whether positive
or negative, could be drawn from other legal systems’ grappling with issues similar
to those with which we are confronted. Consideration of the responses of other legal
systems may enlighten us in analysing our own law, and assist us in developing it

1996 (4) BCLR 537 (CC), 1996 (3) SA 165 (CC).
111 2005 (9) BCLR 835 (CC), 2005 (6) SA 419 (CC) at paras 34–5.
further. It is for this very reason that our Constitution contains an express provi-
sion authorizing courts to consider the law of other countries when interpreting the
Bill of Rights. It is clear that in looking to the jurisprudence of other countries, all
the dangers of shallow comparativism must be avoided. To forbid any comparative
review because of those risks, however, would be to deprive our legal system of
the benefits of the learning and wisdom to be found in other jurisdictions. Our
courts will look at other jurisdictions for enlightenment and assistance in develop-
ing our own law. The question of whether we will find assistance will depend on
whether the jurisprudence considered is of itself valuable and persuasive. If it is,
the courts and our law will benefit. If it is not, the courts will say so, and no harm
will be done.
O’Regan J’s observations starkly contrast with parochial sentiments mani-

fested by some jurists in the United States of America in the course of an
intense debate about domestic courts’ use of foreign law in constitutional inter-
pretation and adjudication in that country. Cheryl Saunders, taking the pulse
of this debate, thus remarks:112
The practice [the use of foreign law] remains a topic of fierce debate among schol-
ars … and among judges writing extra-judicially. It has been the subject of critical
comment in the press. It has attracted the attention of Congress, spawning a series
of proposed resolutions seeking, in one way or another, to discourage judicial refer-
ence to foreign constitutional experience, with impeachment a veiled threat in the
background.
Denunciation of ‘the practice’ (of comparison) professes to be principled on

two accounts. First, reliance on foreign authority is thought to be necessarily
at odds with the original intent of ‘the founding generation’ responsible, in the
first and final instance, for the making of a constitution believed to be in no
need of a ‘current meaning’, that is, an interpretive adaptation to ‘present
circumstances’.113 Second, it is claimed that foreign law is not an authoritative
source of law for (domestic) judges, and those who invoke it arrogate to them-
selves a legislative function at odds with trias politica,114 to import, in a
counter-democratic manner, the ideas of foreign judges over which the people
of the US have no control.
This debate is not particularly relevant in constitutional democracies where
constitutional comparison as interpretive endeavour is practised, encouraged
and, as in South Africa, explicitly authorized by the Constitution. The first objec-
tion of the US antagonists of the use of foreign law in domestic adjudication is
112 Saunders (2006, pp. 91–127) at p. 92.

113 Du Plessis and de Ville (1993, pp. 356–93) at pp. 376–7 and Murkens (2008,
pp. 32–50) at p. 34.
114 Murkens (2008, pp. 32–50) at p. 34.
premised on an exploded theory of constitutional interpretation (rejected by

the South African Constitutional Court in no uncertain terms115 and by South
African scholars too116). As to the second objection, these antagonists stand
alone in their belief that constitutional comparativism is an inevitable and
insurmountable threat to the separation of powers (and democracy). In no
jurisdiction where foreign law is allowed to aid constitutional interpretation is
it looked upon and invoked as binding law (this is actually one of its
strengths117), and courts do not consult it with a ‘legislative frame of mind’ or
defer uncritically to the opinions of foreign legal authorities. Comparative
constitutional jurisprudence, in the presence of powerful constitutional mech-
anisms and reading strategies safeguarding the separation of powers, is a very
unlikely candidate to be the Achilles heel of trias politica.
Some commentators,118 in their account of South African constitutional
jurisprudence on the use of foreign law in constitutional interpretation so far,
tend to pitch (constitutional) judges enthusiastically favouring comparative
constitutional interpretation against the suspected sceptics. Kriegler J’s
cautionary remark in Fose v Minister of Safety and Security119 that he declined
‘to engage in a debate about the merits or otherwise of remedies devised by
jurisdictions whose common law relating to remedies for civil wrongs bears
no resemblance to ours and whose constitutional provisions have but a pass-
ing similarity to our section 7(4)(a)’ is, for instance, construed by Cheadle,
Davis and Haysom120 as both a questioning of ‘the value of foreign law’ and
the expression of an opinion in opposition to Ackermann J’s readiness to take
foreign legal authority into account. Laurie W.H. Ackermann,121 writing extra-
judicially,122 points out, with reference to relevant passages from
Constitutional Court cases, that Kriegler J was not really a sceptic when it
came to the use of foreign law and that approving references to foreign author-
ity indeed occurred in Constitutional Court judgments he authored. In S v
Mamabolo (E TV, Business Day and Freedom of Expression Institute
115 Cf. South African Association of Personal Injury Lawyers v Heath and Others
2001 (1) BCLR 77 (CC) at para. 19.
116 Corder (1992, pp. 204–24) at pp. 206–14.
117 Ackermann (2005–06, pp. 169–93) at pp. 183–4. Cf. also S v Makwanyane
and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391, 1995 (2) SACR 1 (CC) at
para. 39.
118 Cf. e.g. Cheadle et al. (2006, p. 33-3) and also Markesinis and Fedtke
(2005–06, pp. 66–8).
120 Cheadle et al. (2006, p. 33-3).
121 Ackermann (2005–06, pp. 169–93); and cf. also Ackermann (2006, pp.
497–515).
122 And Ackermann (2005–06, pp. 11–167).
Intervening)123 he, for instance, explicitly expressed appreciation for the

usefulness of ‘comparative study’:
particularly where Courts in exemplary jurisdictions have grappled with universal

issues confronting us. Likewise, where a provision in our Constitution is manifestly
modelled on a particular provision in another country’s constitution, it would be
folly not to ascertain how the jurists of that country have interpreted their prece-
dential provision.
Kriegler J’s reluctance to refer to foreign law in certain (over-)publicized

instances stemmed from what he perceived to be his own insufficient, personal
mastery of foreign material or his belief that he could concur in a colleague’s
conclusion without reliance on foreign material.124 Two observations apropos
the Kriegler J dictum above will be helpful to take the present discussion
further.
First, it reminds us that not only international law sources but also the
domestic constitutional texts of other jurisdictions have had a definite impact
on the making of ‘new constitutions’125 and most definitely on the making of
the South African Constitution too.126 Such comparative constitution making
inevitably results in a globalization of constitutional law,127 which, in its turn,
begets and conduces comparative constitutional interpretation.
Second, Kriegler J, not in spite of but in addition to the positive sentiments
expressed in the dictum above, was the sentinel among his peers, constantly
on the lookout for uses of foreign law that he thought might flout Chaskalson
P’s admonition in S v Makwanyane and Another,128 namely that ‘we must bear
in mind that we are required to construe the South African Constitution …
with due regard to our legal system, our history and circumstances, and the
structure and language of our own Constitution.’ A sentiment that weighed
heavily with Kriegler J was his profound appreciation for the unique manner
in which a political and constitutional settlement in South Africa had been
reached through (the give and take of) negotiations and sustained by a
‘Damascene about-turn from executive directed parliamentary supremacy to
124 Ackermann (2005–06, pp. 169–93) at p. 186; cf. also Bernstein and Others v
Bester and Others NNO 1996 (2) SA 751 (CC), 1996 (4) BCLR 449 (CC) at paras
132–3.
125 For the concept ‘new constitutions’ cf. 2 above.
126 De Waal (1995, pp. 1–29); du Plessis (2005, pp. 1–30), http://www.puk.ac.za/
opencms/export/PUK/html/fakulteite/regte/per/issues/2005_1__Du_Plessis_art_tdp.
pdf; and du Plessis (2008, pp. 524–36).
127 Venter (2008, pp. 16–31).
39, cf. the introductory paragraph to 32.5(c)(v) above.
justiciable constitutionalism’, about which he said the following in Du Plessis

and Others v De Klerk and Another:129
Nowhere in the world that I am aware of have enemies agreed on a transitional

coalition and a controlled two-stage process of constitution building. Therefore,
although it is always instructive to see how other countries have arranged their
constitutional affairs, I do not start there. And when I conduct comparative study, I
do so with great caution. The survey is conducted from the point of view afforded
by the South African Constitution, constructed on unique foundations, built accord-
ing to a unique design and intended for unique purposes.
Further through the judgment Kriegler J sounded yet another word of caution,
namely that the advent of a new constitution did not warrant ‘the wholesale
importation of foreign doctrines and precedents’.130 With constitutional
democracy in South Africa in its infancy at the time, such caution was oppor-
tune, for the paucity of home-grown constitutional jurisprudence posed a
danger of overreliance on the jurisprudence of others or of reliance on inap-
propriate foreign sources.
Kriegler J’s word of caution coupled with the last sentence of his dictum
above raised the spectre of unreflective reliance on substantive foreign law,
regardless of the peculiar structural environment in which it occurs and/or the
distinctive procedural matrix in which it took shape. The Chaskalson P admo-
nition in S v Makwanyane and Another131 already suggested vigilance in this
regard and for the reasons mentioned.132 Mark Tushnet133 has, for instance,
shown why and how structural and procedural factors inhibit profitable
reliance by US courts and comparativists on much of the (exemplary) substan-
tive law on affirmative action in some other jurisdictions.
130 Du Plessis and Others v De Klerk and Another 1996 (5) BCLR 658 (CC),
1996 (3) SA 850 (CC) at para. 144.
39, cf. the introductory paragraph to 32.5(c)(v) above.
132 As Cheadle et al. (2006, p. 33-3) explain: ‘Great care must be taken to ground
comparative borrowing, both within the context of the texts from which that authority
emanates and as the nature and purpose of our text. For example, the absence of a
general limitation clause in the United States Constitution or the fact that the European
Convention on Human Rights is an instrument governing the conduct of national states,
has a considerable bearing on the nature of the jurisprudence of the United States
Supreme Court and the European Court of Human Rights. To borrow uncritically from
these jurisdictions, without considering the appropriate context, is an exercise fraught
with danger, a fact which was acknowledged by Chaskalson P in Makwanyane.’ Cf.
also Sanderson v Attorney-General, Eastern Cape 1997 (12) BCLR 1675 (CC), 1998
(2) SA 38 (CC) at para. 26.
133 Tushnet (2004, pp. 649–63).
Difference in context, however, in the light of the previously quoted dicta

of O’Regan J in K v Minister of Safety and Security,134 seems to be no insur-
mountable impediment to the comparison of the constitutions and constitu-
tional law of two systems, even where the differences between these systems
go to their historical and conceptual roots, as long as the dangers of shallow
comparativism are avoided and the foreign jurisprudence considered is of
itself valuable and persuasive.135
4.2 The Demonstrable Value and Advantages of Constitutional

Comparativism
Constitutional comparativism has since 1994 featured prominently in consti-

tutional jurisprudence in South Africa and not least of all in the jurisprudence
of the Constitutional Court. Laurie W.H. Ackermann136 drafted a list of no less
than 26 instances and areas in which reliance on foreign law substantially co-
determined interpretive and adjudicative outcomes in Constitutional Court
cases.
Constitutional comparativism has demonstrable practical value besides and
beyond lip-service recognition of the actualities of constitutional globalization
and of the embeddedness of one’s own constitution and constitutional dispen-
sation in a transnational reality. At the level of mundanity it makes constitu-
tional interpreters aware of law, and especially foreign precedents, that can be
invoked to justify their decisions. Brun-Otto Bryde, speaking extra-judicially
but from his experience as a constitutional judge, points out that such author-
ity can be particularly helpful lending additional legitimacy to findings and
decisions dealing with difficult issues and going against public opinion: ‘Even
an old court with much self-confidence can profit from pointing to persuasive
foreign precedents.’137
Bryde138 moots the possibility of distinguishing between the interpretive uses
of foreign law as inspiration and as legal argument in constitutional adjudication.
In the first instance a foreign source is looked at because the way in which it
deals with a certain issue ‘is interesting’ to the same extent (and in the same
manner) as the opinion of, for instance, a law professor will be ‘interesting’. In
this sense there is no numerus clausus of persuasive sources of law and it is
mostly broad principles (as opposed to particular rules or norms) that are
134 2005 (9) BCLR 835 (CC), 2005 (6) SA 419 (CC) at paras 34–5.
135 K v Minister of Safety and Security 2005 (9) BCLR 835 (CC), 2005 (6) SA
419 (CC) at para 35.
136 Ackermann (2005–06, pp. 169–93) at pp. 187–90.
137 Bryde (2005–06, pp. 203–19) at pp. 207–8.
138 Bryde (2005–06, pp. 203–19) at pp. 213–19.
looked at. Even a foreign text misunderstood or taken out of context can,
according to Bryde, be inspirational. When foreign law is relied on as a legal
argument, however, a judge must get it right! Such an argument can draw on
foreign experience in the application of national standards, the application of
international standards in foreign (domestic) jurisdictions and transnational
constitutionalist principles limiting domestic constitutional law.
At the level of contemplation, where weighed (self-)reflection holds sway,
constitutional comparativism fulfils, according to Laurie W.H. Ackermann,
also speaking from practical experience, two vital functions. First, it can
feature prominently in identifying issues at hand in a given case.139 With
Albert Einstein, Ackermann believes that the formulation of a problem is often
more essential than its solution. Foreign law, precisely because it is not bind-
ing and therefore does not exert pressure ‘to be of effect’ as ordinary law,
creates room for ‘creative imagination’ and ‘to raise new questions, new possi-
bilities, [and] to regard old problems from a new angle’.140 At a critical stage
of judicial reasoning, namely where the judge has arrived at a preliminary
conclusion or hypothesis, reference to comparative examples assists him or
her in vital (and necessary) attempts to falsify such a conclusion or hypothe-
sis.141
Second, ‘the comparative legal approach’ is there for the judge to interro-
gate her or his own prejudices142 and to engage in a most crucial dialogue with
her or himself, in the course of which ‘hypotheses emerge, … intellectual,
cultural and other predispositions compete’ and ‘critical rationalism can come
into play to test and adapt hypotheses’:
It is at this stage, consciously or not, that one’s philosophical, economic and

jurisprudential Gestalt enters the picture. At this stage I have found comparative
legal concepts to be most helpful.143
Another perspective on the value and uses of constitutional comparativism

is that of A.J. van der Walt,144 a legal scholar writing with reference to

140 Albert Einstein quoted by Ackermann (2005–06, pp. 169–93) at pp. 169 and
185.
141 Ackermann (2005–06, pp. 169–93) at p. 185.
142 Ackermann (2005–06, pp. 169–93) at p. 191 thus explains:
‘No judge is a “Hercules” or an “Athena”. The best one can do is to strive consciously
to become aware of all one’s prejudices, to be aware that, this exercise notwithstand-
ing, one will still have subliminal predispositions, and to toil as honestly as one can in
the vineyard.’
144 Van der Walt (1999, p. 38).
comparativism in constitutional property law, his area of specialization. He

advances, from his learning experience, the following insightful contentions:
Seen as a study of a collection of histories, comparative analysis of foreign property

clauses and case law draws our attention to the inevitable and inescapable contex-
tuality of the law and of constitutional property adjudication. As a history of errors,
comparative study shows us a range of fallacious doctrines, theories and arguments
that have already been discredited and should be avoided. As a history of possibil-
ities, comparative study shows us that certain doctrines, theories and arguments
could still be used as possible explanations of or solutions for individual problems.
As a history of examples, comparative study shows us the methods, techniques and
approaches that are available to us. Like the historical study of law, the comparative
study of law liberates us from what we need not do; it cannot and should not enslave
us by telling us what we have to do.
4.3 Conclusions Pertinent to Constitutional Comparativism
Two major challenges face constitutional comparativism (and constitutional

comparativists) in South Africa. The first is duly to account for the compara-
tive significance of South Africa counting among a number of ‘new’ constitu-
tional democracies with ‘new’ constitutions in an era of ever increasing
globalization. ‘Newness’, as was previously pointed out,145 can relate explic-
itly to having a constitution drafted with reference to and drawing on post-
World War II international human rights instruments.146 However, ‘newness’,
alluding to a North–South distinction in comparative constitutional law, can
also refer to renewed processes of democratization and constitution-making
worldwide, described by some as ‘the third wave of democratization’:147
This process started with the disappearance of the last right-wing dictatorships in
Southern Europe, was followed by the breakdown of communism in Eastern Europe
and has become a world-wide phenomenon most remarkably in Latin America but
also in Africa and Asia. While setbacks are common the overall process is signifi-
cant.148
This perspective brings with it an awareness of historical possibility149 as

promise. Looking forward is distinctively part of a new beginning. At the same
145 Cf. 2 above.

146 Such as the European Convention on Human Rights and Fundamental
Freedoms, the International Covenant on Economic, Social and Cultural Rights and the
International Covenant on Civil and Political Rights. Bryde (2005–06, pp. 203–19) at
p. 208.
147 Bryde (1999, pp. 697–705) at p. 701.
148 Bryde (2008, pp. 10–15) at p. 11.
149 As van der Walt (1999, p. 38) would have it.
time the said perspective evokes memory, included in which is a ‘history of

errors’ (à la van der Walt150) as a reminder that achievements and blunders can
be equally instructive when the constitutions, constitutional law and, most
importantly, constitutional experiences of (new) nations are compared. The
unusual success achieved in South Africa with its peaceful transition – and
rightly referred to by Kriegler J in Du Plessis and Others v De Klerk and
Another151 with hardly disguised pride and appreciation – is no cause for
complacency, for constitutional triumphalism remains premature wherever a
‘history of errors’ looms (and may again be in the making). The call to alert-
ness does not of course apply to ‘new’ democracies only (oldness and smug-
ness often prove to be the most likely companions). Where constitutional
democracy is tried anew or for the first time, it is of existential urgency that
jurisdictions engaged in the endeavour should learn from one another’s posi-
tive and negative experiences, and share with one another their expectations of
future possibilities and promises.
The second challenge, in the first place directed at (but not restricted to)
comparativist constitutional scholars,152 is to harness the theoretical strengths
and possibilities of (practical experiences of) constitutional comparison, and
insights gained from it, in order to reflect on and develop methodologies of
comparison.153 This endeavour will have to go beyond reliance on (and use of)
foreign law in constitutional interpretation, but will inevitably also include it.
Much of what has been said in this chapter about the use of foreign law in
constitutional interpretation draws on practical wisdom, profound no doubt,
but still inadequately explained and justified in terms of a broader theoretical
model or framework. How does the constitutional comparativist, for instance,
decide that, as O’Regan J has it in the previously cited dictum from K v
Minister of Safety and Security,154 a certain version of comparativism is ‘shal-
low’ or whether foreign jurisprudence considered in a particular case ‘is of
itself valuable and persuasive’? As to Chaskalson P’s155 directional and
Kriegler J’s156 constant reminders that ‘we must bear in mind that we are
150 Van der Walt (1999, p. 38).

152 Saunders (2006, pp. 92–127) at pp. 119–26, as a matter of fact, convincingly
argues that it is important for courts also to take comparative methodological issues to
heart.
153 There is, in fact, a paucity of writings in South Africa on constitutional
comparativism. Only one monograph has so far been published, namely Venter (2000).
Chapter 1 of this work deals with issues of comparative constitutional methodology.
1995 (2) SACR 1 (CC) at para. 39.
required to construe the South African Constitution’, what are the criteria and
conditions that make interpretive reliance on comparative materials at all
possible and when are two systems of constitutional law (and/or aspects of
them) sufficiently compatible to be comparable for interpretive purposes?
How is a ‘wholesale importation of foreign doctrines and precedents’ to be
distinguished from prudent reliance on whatever (legitimate) instructive value
these doctrines and precedents might have?157 And is the debate about the
‘transplantation’ versus the ‘migration’ of foreign law relevant in the South
African context?158
As to the suggestion of Bryde159 about the distinction between the use of
foreign sources of law as inspiration and as legal argument, how is it to be
decided where the one ends and the other begins? Bryde maintains that for the
former mode of reliance ‘there are few normative or methodological require-
ments’ while for the latter mode ‘the methodology has to be more thorough’.160
Apart from suggesting that a thorough methodology entails ‘getting it right’ as far
as a judge’s understanding of relevant foreign law is concerned, Bryde is silent
on the essential difference between the two methodologies – and it will certainly
be worthwhile for constitutional comparativism as such to get that right!
Laurie W.H. Ackermann’s thoughtful account of his experiences as a judi-
cial comparativist161 opens possibilities for profitable scholarly enquiry. What
is inherent in constitutional comparison that, given the structure of judicial
reasoning, makes it helpful in identifying problems and issues, testing
hypotheses and interrogating (one’s own) prejudices? More down to earth: can
a theoretical account be given of patterns and trends in the manner in which
the Constitutional Court has so far relied on foreign materials in constitutional
interpretation? And has the fact that there are different methods (or ‘schools’)
of constitutional comparison162 at all shown in South African courts’ dealings
with foreign law in constitutional interpretation?
And finally, how do all the questions above relate to constitutional inter-
pretation and, in particular, the kind of constitutional comparison envisaged in
section 39(1)(b) of the Constitution and suggested by the written constitutional
text read as a whole?
1996 (3) SA 850 (CC) at paras 127 and 144; Sanderson v Attorney-General, Eastern
Cape 1997 (12) BCLR 1675 (CC), 1998 (2) SA 38 (CC) at para. 26.
1996 (3) SA 850 (CC) at para. 144.
158 Cf. Choudhry (2006, pp. 1–36).
159 Bryde (2005–06, pp. 203–19) at pp. 213–19.
160 Bryde (2005–06, pp. 203–19) at p. 214.
161 Ackermann (2005–06, pp. 169–93).
162 Cf. in this regard Tushnet (2006, pp. 67–83).
5 GENERAL CONCLUSIONS
(i) Utilization of (and compliance with) international law, on the one hand, and
(ii) constitutional comparativism, on the other, erroneously conflated in the
jurisprudence of the Constitutional Court,163 are two distinct and active role
players on the big platform of globalization. As procedures of constitutional
(and, more particularly, human rights) interpretation, they are different modes
of access to a transnational legal and constitutional context, (i) more
pronouncedly from the perspective of norms and standards universally
accepted and upheld and (ii) as the realization of a readiness to learn from (the
world of) others both (and simultaneously) different from and similar to the
(world of the) self. Transnational contextualization may function as an anti-
dote to parochialism, but may not, in the process, be allowed to become an
exterminator of pluralism and diversity. The transnational perspective, apart
from drawing attention to what is universal, also facilitates recognition of what
is narrow but at the same time matchless in any particular constitutional and
human rights dispensation. Transnational contextualization is, in other words,
not just a way of taking universal factors into account and bringing macro
forces into play, but it must also honour uniqueness and aid its preservation
and promotion, and it is definitely not (and ought not to be perceived as) a
necessary panacea for each and every possible symptom of national
(self)interestedness. That transnational wisdom and expertise have to bend the
knee to narrow political pressure(s) is sometimes inevitable (as AZAPO164
showed), is always regrettable (as critics of AZAPO pointed out165), but in a
healthy constitutional democracy is hardly ever the end of the road (as the ebb
and flow of the Constitutional Court’s jurisprudence on the framework judg-
ment in Makwanyane166 showed167).
In any particular country the concretization of human rights law (with its
inherent values) entails participation in the dynamic and complex writing of
the bigger narrative of human rights in that country. This cannot be a grand or
master narrative, planned in advance (and in detail), and with an ever
predictable storyline. There are too many aberrations, inconsistencies and
imponderables involved. It is therefore also impossible to gauge, with any reli-
163 Cf. 2.2 above.

165 Motala (1996, pp. 29–59); Botha and Olivier (2004, pp. 42–77) at p. 51. Cf.
also 3.9 above.
1995 (2) SACR 1 (CC) at para. 35.
167 Cf. 3.2–3.5 above.
able precision at any given point in time, the specific ‘contribution’ of inter-
national and foreign law to that narrative. If the present chapter has as much
as indicated approximately how dynamic a force transnational contextualiza-
tion has become in the unfolding of the South African human rights narrative
and in human rights law since 1994 – a dearth of international- and compara-
tive-law skills and capacity among jurists notwithstanding – it may pass as a
worthwhile (albeit exploratory) perspective on the divide (and interaction)
between international, foreign and national law in an erstwhile pariah state
shut off from the dynamism of transnational realities on the platform of glob-
alization for too long.
REFERENCES
Cases
A M Moola Group Ltd and Others v Commissioner, South African Revenue Service
and Others 2003 (6) SA 244 (SCA).
Azanian People’s Organisation (AZAPO) and Others v President of the Republic of
South Africa and Others 1996 (8) BCLR 1015 (CC), 1996 (4) SA 672 (CC).
Bernstein and Others v Bester and Others NNO 1996 (2) SA 751 (CC), 1996 (4)
BCLR 449 (CC).
CC Maynard et alii v The Field Cornet of Pretoria (1894) 1 SAR 214 at 223.
Certification of the Amended Text of the Constitution of the Republic of South Africa,
1996, In re: Ex parte Chairperson of the Constitutional Assembly 1997 (1) BCLR
1 (CC), 1997 (2) SA 97 (CC).
Certification of the Constitution of the Republic of South Africa, 1996, In re: Ex parte
Chairperson of the Constitutional Assembly 1996 (10) BCLR 1253 (CC), 1996 (4)
SA 744 (CC).
Du Plessis and Others v De Klerk and Another 1996 (5) BCLR 658 (CC), 1996 (3)
SA 850 (CC).
Ex parte Gauteng Provincial Legislature. In re: Dispute Concerning the
Constitutionality of Certain Provisions of the Gauteng School Education Bill of
1995 1996 (4) BCLR 537 (CC), 1996 (3) SA 165 (CC).
Fose v Minister of Safety and Security 1997 (7) BCLR 851 (CC), 1997 (3) SA 786
(CC).
Government of the RSA and Others v Grootboom and Others 2000 (11) BCLR 1169
(CC), 2001 (1) SA 46 (CC).
K v Minister of Safety and Security 2005 (9) BCLR 835 (CC), 2005 (6) SA 419 (CC).
Kaunda and Others v President of the RSA and Others (2) 2004 BCLR 1009 (CC),
2005 (4) SA 235 (CC).
Mohamed and Another v President of the RSA and Others 2001 (7) BCLR 685 (CC),
2001 (3) SA 893 (CC).
S v Baloyi 2000 (1) BCLR 86 (CC), 2000 (2) SA 245 (CC).
S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391, 1995 (2)
SACR 1 (CC).
S v Mamabolo (E TV, Business Day and Freedom of Expression Institute

Intervening) 2001 (5) BCLR 449 (CC), 2001 (3) SA 409 (CC).
Sanderson v Attorney-General, Eastern Cape 1997 (12) BCLR 1675 (CC), 1998 (2)
SA 38 (CC).
South African Association of Personal Injury Lawyers v Heath and Others 2001 (1)
BCLR 77 (CC).
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7. Globalization, state commercial
activity and the transformation of
administrative law
Geo Quinot*
1 INTRODUCTION
One central theme in the globalization1 debate is the changing nature of the
state.2 While debate rages within globalization literature about whether the
state has vanished, continues to exist only in hollowed-out form or remains a
dominant actor within the global picture,3 one thing is more or less accepted –
the state’s modus operandi is quite different from what it was a century ago.
In assessing the debate about the impact of globalization on the nation state,
Georg Sørensen concludes:
[S]tates as well as markets have been transformed under conditions of economic

globalization. Instead of a reduced role for the state, the role of the state has
changed. States operate under different circumstances than before; in some way
they are subject to new constraints, but states have also developed new ways of
* BA LLB (Stell) LLM (Virginia) LLD (Stell), Associate Professor, Department

of Public Law, Stellenbosch University.
1 I will not attempt to define globalization in this chapter. It seems that the very
definition of the notion is as contested as its existence and impact. As Strange (1996,
p. xiii) notes: ‘The worst [term] of them all is “globalization” – a term which can refer
to anything from the Internet to a hamburger’. See Koenig-Archibugi (2003, pp. 2 et
seq.) and also Goodin (2003, pp. 69 et seq.); De Feyter (2007a, pp. 1, 3 et seq.);
McGrew (1998, p. 299); Sørensen (2004, pp. 23–6). Instead, I will take Harry Arthurs’
insight, in his analysis of globalization and labour law, as my point of departure.
Arthurs argues that ‘globalization is formative, not normative. It changes labour law
not by directly amending the substantive rules but by transforming the institutions,
structures and processes through which those rules are made and administered’,
Arthurs (2006, p. 56).
2 See generally Sørensen (2004).
3 See De Feyter (2007a, pp. 3–4) and Pikalo (2007, p. 17); McCrudden (2007,
pp. 580–81); Sørensen (2004) Chapter 1.
183
regulating the market. Thus the transformation that has taken place contains
elements of states both ‘losing’ and ‘winning’.4
One of the central features of development in statecraft globally over the

last roughly two decades has been the idea that public functions do not neces-
sarily have to be delivered through purely public institutions or in public
form.5 The result has been the emergence of a complex network of organiza-
tional forms and action types that in aggregate constitute the state or the state
function.6 Forms stemming from private law play a significant part in this new
make-up of the state and state action. Globalization arguably has a consider-
able impact on this development. International financial institutions, such as
the World Bank and IMF, actively promote new forms of statecraft that are
much closer aligned to the private sector both conceptually in design and in
practice through public–private cooperation.7 Increased use of private law
forms to achieve public functions can also be seen as one outcome of the
marketization of all aspects of social life, which is another central theme
running through the globalization literature.8
The transformed technique of statecraft is perhaps most evident in the
state’s participation in the market as a market-player, something which is often
used by globalization sceptics to argue that the state has in fact not vanished –
for example, by pointing out the massive increase in state participation in the
economy as a percentage of GDP.9
If increased marketization of public life is a significant element of global-
ization10 then it follows that for the body public to retain control over its own
4 Sørensen (2006, pp. 193–4). Also see in the same volume Flinders (2006, p.
224): ‘Neo-liberal attempts to “rollback” the boundaries of the state in a number of
advanced liberal democracies in response to a perceived crisis during the 1970s have
arguably led not to a reduction in the role, budget or powers of the state but to a rede-
finition, transformation or change in the structure of the state. There has been a change
in governing frameworks from hierarchical bureaucracies to complex networks and
markets: a shift from government to governance in which the extent of delegated
responsibilities and the role of private contractors has increased. Para-statals and P3s
represent instruments for meeting the obligations of the state and offer an infra-struc-
tural capacity for coping with crises and public demands’ (references omitted);
McCrudden (2007, p. 581); McGrew (1998, p. 299); Van der Westhuizen (2002, pp.
2–3).
5 See Flinders (2006, p. 223); Collins (1999, pp. 303, 305).
6 Sørensen (2004, pp. 34–8).
7 World Bank World Development Report (1997); Harrison (2004); Flinders
(2006, p. 230); Stiglitz (2003, p. 58); Bolton (2007, pp. 300, 303).
8 Marsh et al. (2006, p. 172); Goodin (2003, p. 69). See Bolton (2007, pp. 2–3).
9 See Bolton (2007, pp. 3–5).
10 See Goodin (2003, p. 69) who notes that ‘a nation tr[ies] to keep some of [its]
fundamental collective decisions safely sequestered from undue influence by others’
State commercial activity and administrative law 185
destiny it must increase its participation in commercial markets; that is, it must
increasingly play the market game.11 Increased state commercial activity can
thus be viewed as an attempt by the state to maintain competitiveness on the
global stage, but also on the domestic stage, where globalization has created
powerful rivals for the erstwhile sovereign and hence all-powerful state in the
form of multinational corporations and competing foreign state commercial
actors.12 Competitiveness in this sense is not simply a matter of getting ahead
– snatching investment away from competing players or extracting maximum
benefits from available resources – but indeed a matter of maintaining exist-
ing public goods in the face of competitors with the power to impose far-
reaching changes to the common (domestic) take on public life.
This transformation of state administration in the face of globalization
necessitates a reconsideration of the legal measures applicable to the state
against the background of such transformation. In short, there is a need to
consider the transformation of administrative law. In particular, the state’s
increased reliance on non-traditional forms of organization and conduct,
notably of a commercial nature, creates a need to carefully reconsider
administrative law as traditionally viewed at the core of public law.13 As one
political scientist notes:
The delegation of tasks [to para-statal bodies and private commercial entities by the
state] has largely been bereft of any coherent legal framework or even a broad state-
ment of principle. Functions have largely been delegated on an ad hoc basis, which
explains why the fringes of the state tend to be messy, confused and devoid of any
underpinning rationale or logic.14
and that ‘[t]hat capacity to do things differently, here from elsewhere, is precisely what
old-fashioned trade barriers used to buy us. And that is what is lost with the collapse of
those trade barriers and rampant globalization.’Along similar lines Hugh Collins notes:
‘[T]he shift towards contractualization in social life is perhaps one of the most potent
symbols of political and business culture at the close of the twentieth century’, Collins
(1999, p. 18).
11 See Koenig-Archibugi (2003, pp. 3–7).
12 Arthurs (2006, p. 55) notes that ‘the revenues of any of the top 100 or so
global firms exceed the GDP of many nations.’ Sørensen (2004, p. 4).
13 In Pharmaceutical Manufacturers Association of SA and Another: In re ex
parte President of the Republic of South Africa and Others 2000 (2) SA 674 (CC) at
para. 45, Chaskalson P formulates this traditional view as follows: ‘Whilst there is no
bright line between public and private law, administrative law, which forms the core of
public law, occupies a special place in our jurisprudence. It is an incident of the sepa-
ration of powers under which courts regulate and control the exercise of public power
by the other branches of government. It is built on constitutional principles which
define the authority of each branch of government, their inter-relationship and the
boundaries between them.’
14 Flinders (2006, p. 229).
In this chapter I want to explore a number of issues facing administrative

law within the context of state commercial activity. My interest in this specific
field stems from a view that research in this area can act as an incubator for
the development of theories, models or, to use a phrase recently introduced to
me by Henk Botha, angles of approach15 that can have wider application and
that touch upon a number of the most interesting and pressing current legal
dilemmas.16 Within the broader context of this project on law and globaliza-
tion, the chapter aims to unpack the issues emerging from administrative law
applied to state commercial activity in a way that facilitates comparison with
issues emerging in other areas of law under the influence of globalization
themes. In this broader context it is worth noting as a point of departure that
the moment state administration loses its conventional command and control
characteristics and takes on private law structuring a dilemma is created for
the legal framework of such state administration. The conventional basis and
accompanying assumptions of the state action being regulated by these legal
rules are increasingly inapt and questions emerge about the origin of the legal
rules that are being applied, the underlying rationale in their formulation and
the regulatory aims served by the enforcement of such rules.
2 ‘STATE COMMERCIAL ACTIVITY’

When I talk about state commercial activity, I am interested in all actions of
the state, in its various forms, that emulate private market transactions in the
private market. In other words I am thinking about the conduct of the state as
a market participant. These actions take a wide variety of forms ranging from
commonplace public procurement transactions, the state buying goods and
services, to fairly complicated public–private partnerships such as the
development and running of prisons, public hospitals or police stations. These
actions have the common characteristics of being framed in private law form
but aimed at fulfilling a public function through state action.
State commercial activity is particularly interesting from a globalization
perspective given the complex interaction between a state’s welfare spending
and its global competitiveness.17 For example one sees a large variety of
15 See Botha (2009). This phrase comes from Ndebele (2003, p. 82) where the
last of the four imaginary South African descendants of Penelope waiting for their
husbands to return describes her attitude in preparing herself for the moment of
reunion: ‘To have an angle of approach rather than a plan. That will do. An approach
enables you to imagine yourself in a situation without its details. That should be
enough. Otherwise the details can chew away at your options.’
16 See Quinot (2007) Chapters 6 and 7.
17 See Marsh et al. (2006, p. 186); Koenig-Archibugi (2003, pp. 3–7).
commercial arrangements being pursued by the state in order to attract

(foreign) investment on the global market while these arrangements are
domestically often aimed at the provision of public goods. Many state
commercial actions thus exhibit a dual purpose. One can often identify in state
commercial activity attempts on the part of the state to harness economic
mechanisms in pursuit of welfare goals. In such cases it is a public welfare
motivation that drives the state’s enthusiasm for market participation.
However, the impact also works the other way around, as noted above. In a
globalized world, the state is forced to adopt a market role if it wants to share
in global wealth. This role has a significant impact on the state’s policy options
in relation to welfare programmes.18
3 APPLICABLE NORMS
Traditionally, in common law and civil law systems alike it seemed relatively
straightforward to fit state action into either commercial or governmental cate-
gories. When the state buys and sells it is acting commercially and its conduct
is simply subject to ordinary commercial law. When, on the other hand, the
state provides services to the public it is acting administratively and public law
applies. However, it has long been recognized that such an approach is
simplistic and does not align with reality.
As noted above, the marketization of all aspects of public life results in a
fusion of the governmental and the commercial. Today, the state has recourse
to a large array of tools in exercising its public powers and commercial action
features prominently amongst them. Peters and Pierre accordingly note that
‘the linear, autonomous conception of governing had been replaced by far
more complex arrangements for making and delivering policy’.19 These
complex institutional arrangements imply a much more complex legal land-
scape against which state action is to be understood.
Furthermore, the complex interaction between economic means and social
welfare ends has important implications for the legal treatment of the state.
The traditionally applicable norms of administrative law are conventionally
premised on much simpler relationships between state and citizen in the fulfil-
ment of public functions. The interaction between economic form and public
function hence calls for a careful reconsideration of the relationship within
legal doctrine between rules aimed at commercial conduct and public func-
tions respectively.
18 Koenig-Archibugi (2003, pp. 5–7) and Stiglitz (2003, p. 58); Sørensen (2006,
pp. 203–4).
19 Peters and Pierre (2006, p. 220).
This emerging complexity is illustrated by a simple privatization example.

When the state exclusively supplies water services directly to citizens, the
legal relationship between user and supplier is easily characterized as a public
law relationship governed by relevant public law rules. The user’s entitlement
to water services is clearly aimed directly against the state and any problems
with supply are straightforwardly dealt with in terms of that single relation-
ship. However, when the state outsources water services to a private contrac-
tor, the legal framework immediately becomes more complicated. A triangle
of legal relationships is created between user, private supplier and state, which
relationships are often quite difficult to untangle and to conceptualize within
existing legal frameworks. Privatization hence evidently calls for detailed and
specific regulatory frameworks to set the applicable legal landscape.
In common law systems, such as South Africa’s, the legal response to these
institutional developments has been fairly simplistic. The predominant
approach is still to attempt a classification of action governed by either
commercial or public law norms.20 Continental European systems have a
much longer and more diverse history of public–private interaction in the real-
ization of public functions. Accordingly, their administrative law systems
exhibit a more developed facilitating function in combination with their
control functions.21 However, analysis of continental systems indicates that
many theoretical problems experienced in common law systems in dealing
with state commercial activity are also present and provide similar dilemmas
on the continent.22 This is illustrated by the difficulties experienced in classi-
fying state contracts as either administrative contracts or private law contracts
in France and Germany23 and by the problems experienced in most EU
Member States in creating effective remedies for the judicial review of all state
contracts under pressure from EU law on public procurement.24 The shift that
has taken place in statecraft, partly linked to globalization, involves commer-
20 Quinot (2007) Chapter 3.

21 See Freedland (1994, p. 98).
22 Quinot (2007, pp. 304–5).
23 Turpin (1982, pp. 28–31); Ehlers (2006, pp. 140–41) and Gurlit (2006, p. 698
et seq.); Brown and Bell (1998, pp. 141–3; 202); Mitchell (1954, pp. 171 et seq.);
Arnould (2001, pp. 335–6).
24 Arrowsmith (2006a, p. 86), ‘Case C-212/02, Commission v Austria: The
Requirement for Effective Remedies to Challenge an Award Decision’ (2004) 13
Public Procurement LR NA165, ‘France: Actions to Enforce the Community
Procurement Rules in France: Decree No. 92-964 of September 7, 1992’ (1993) 2
Public Procurement LR CS12, ‘Enforcing the EC Public Procurement Rules: The
Remedies System in England and Wales’ (1992) 1 Public Procurement LR 92; Arnould
(2001, pp. 338–40), ‘The French Council of State and the Reform of the Public
Contracts Law of 2001’ (2004) 13 Public Procurement LR NA6-13.
cial action in delivering public functions at levels well beyond administration

in private law form hitherto familiar to continental European systems. The
new commercial arrangements involving the state are much more complex
than in the past, so that continental European systems also experience pres-
sures on administrative law.25
One of the central dilemmas in reassessing the applicable legal framework
for state commercial activity relates to the origin of the norms that structure
state commercial relationships.26 If the normal legal rules of the market, that
is, private law rules, are applied, questions emerge about accountability and
public involvement in the creation of the relationship and conduct in terms of
it. Private law ordering, especially the law of contract with its inherent notions
of privity, reciprocity and individualism,27 seems inept to cater for the unique
25 Peters and Pierre (2006, pp. 210–11) argue that ‘while the emergence of insti-
tutionalized forms of concerted action between public and private actors was a novelty
to the British political milieu, it was certainly a familiar phenomenon both in (the rest
of) Europe and even in the United States’ but go on to note that ‘[e]ven so, however,
the British developments over the past couple of decades have been more profound and
have had bigger ramifications on the political system than in most other parts of the
world’ (references omitted). They continue to argue (p. 220) that in general ‘the linear,
autonomous conception of governing had been replaced by far more complex arrange-
ments for making and delivering policy.’
26 I am not simply referring here to the origin of the formal rules that govern the
legal relationships. I am more particularly thinking about the norms that govern the
specific transaction or relationship. The essential question is thus who is in control of
setting the rules or standards for this specific transaction.
27 Duncan Kennedy argues that ‘[i]ndividualism provides a justification for the
fundamental legal institution of … contract’ and that ‘[t]he essence of individualism is
the making of a sharp distinction between one’s interests and those of others, combined
with the belief that a preference in conduct for one’s own interests is legitimate … it
means a firm conviction that I am entitled to enjoy the benefits of my efforts without
an obligation to share or sacrifice them to the interests of others.’ In contrast, he iden-
tifies the ‘counterethic’ of altruism as ‘the belief that one ought not to indulge a sharp
preference for one’s own interest over those of others. Altruism enjoins us to make
sacrifices, to share, and to be merciful’, Kennedy (1976, pp. 1713–21); see also
Cockrell (1992, p. 40) for an application of Kennedy’s arguments to South African
contract law. Most recently, Deputy Chief Justice Moseneke described contract law as
follows: ‘The notion of contractual autonomy belongs to a larger worldview and
ideology. It flows from classical liberal notions of liberty and the neo liberal penchant
for free, self-regulating and self-correcting markets driven by individual entrepreneurs
who thrive on freedom of choice and freedom to strike handsome bargains. The law of
contract is meant to facilitate the securing of market needs. It is meant to be a value-
neutral set of muscular but predictable rules that curb uncertainty whilst inspiring
confidence in the market place’, Moseneke (2008), available at http://www.mymaties.
com/portal/page/portal/law/index.english/news/20081, accessed 14 November 2008
(hereafter ‘Moseneke Annual Public Lecture 2008’).
public features of state commercial activity.28 In particular, it is not clear that

public interest can be adequately internalized in such relationships via the
medium of private law.29 If private law is to provide an effective legal frame-
work for state commercial activity then, as Mark Freedland argues, ‘our
primary concern should be to ensure that these private law-based instruments
are tuned to register the sound of public interest’.30
The problem is, however, not restricted to facilitating the public interest
dimension to the relationship. There are also particular difficulties in private
law structuring of the relationship between the primary parties to state
commercial transactions. In such transactions the state by and large dictates
the terms.31 Fairness vis-à-vis the private party to the transaction hence
becomes an issue from a norm generating perspective. However, unlike simi-
lar fairness disputes in truly private contracts of adhesion, the decks are sig-
nificantly stacked against the private party in state commercial transactions.
The competing interests are not simply that of one (private and potentially
weaker) party against another (more powerful one), but of the public interest
(ostensibly represented by the state’s actions)32 against the interest of the
private contractor. The need to take account of the power relationship between
the parties to state commercial transactions is hence of paramount importance
in the applicable legal framework.33
But the complexity of norm generation does not end there. In state commer-
cial transactions it is equally often the case that the particular organ of state
involved is also not in control of the terms of the relationship. The terms and
conditions for such transactions are often prescribed, even to contracting
organs of state, by a central authority, such as a national treasury or a state
28 Collins (1999, p. 306).

29 See Quinot (2007) Chapter 4.
30 Freedland (2003, p. 134). Collins (1999, pp. 307–8).
31 Quinot (2008b, p. 109).
32 For the moment I am leaving aside the possibility that the public interest and
the interests of the particular state party to the transaction may not be the same thing,
which, if accepted, would complicate the relationships even further.
33 Another dimension of state commercial relationships that differs from analo-
gous private relationships is the ability of the state to lawfully resile from transactions
on public interest grounds with reliance on the no-fettering principle. In terms of this
principle an organ of state cannot bind its future exercise of discretion in a way contrary
to the public interest at the time when the discretion is to be exercised. This implies that
while an organ of state may validly enter into a binding contract it may be able to resist
performance under that contract if such performance would not be in the public inter-
est at that time. In such a scenario the state is clearly in an advantageous power posi-
tion vis-à-vis the private party. See Davies (2006b, p. 98); Wade and Forsyth (2004, pp.
330–34; 840–84); Hoexter (2007, pp. 285–90); Turpin (1989, pp. 85–90); Bolton
(2007, pp. 86–95); Arrowsmith (1992a, pp. 72–8).
tender board.34 The power of the particular contracting organ of state to deter-
mine the structure of the relationship vis-à-vis the central authority adds
another layer of complexity to the particular transaction. Again, the individu-
alism of private law does not seem to be well suited to account for this
complexity. In state commercial transactions one may thus find two parties35
bound by terms that neither would have chosen freely.
Both the public interest in state commercial transactions and the public
power that is wielded when entering into and within such transactions neces-
sitate greater public involvement and scrutiny than would be the case in ana-
logous private transactions. Normal rules of commercial law do not provide
adequate measures to facilitate such public involvement in setting up the rela-
tionship.
From a normative point of view, the essential question is this: if, in the
words of Moseneke DCJ, ‘[t]he law of contract … is meant to be a value-
neutral set of muscular but predictable rules’,36 how can one ensure that the
normative values upon which the state is founded and which are hence meant
to be foundational to all state action as an important implication of constitu-
tional democracy37 are instilled in the state’s commercial conduct? If the
state’s commercial conduct was negligible, this question would have been
marginal or simply an academic obscurity – as it perhaps has been for a long
time. However, as I have argued, the forces of globalization are increasingly
compelling the state towards commercial forms of action. As a result, the
tension between commercial form and normative constitutional values is
mounting. Even if constitutional values could find their way into state
commercial transactions via private law structuring38 the globalization angle
raises questions about the particularity of such values.39 If any particular
state’s turn to commercial forms of action is a result of external pressures
34 For the position in South Africa see Quinot (2008b, p. 109); Bolton (2007, pp.
368–9) and internationally Arrowsmith et al. (2000, pp. 357–8).
35 Mostly, the contracting organ of state and the central authority that prescribed
the terms will be a single legal entity so that in a strict legal analysis the state (with all
its organs) constitutes the one party to the transaction, which obviously negates the
argument made here. However, I am referring to parties here in a more general and less
technical sense to denote the particular physical entities concluding the transaction, i.e.
focusing on the particular organ of state rather than the aggregate state.
36 Moseneke (2008).
37 In the South African context these values include accountability, responsive-
ness, openness, efficiency, transparency, Constitution of the Republic of South Africa,
1996 (hereafter ‘the Constitution’) ss 1, 33, 41, 195.
38 For different views on the possibility of introducing constitutional values into
private relations via private law see Lubbe (2004, p. 395); van der Walt (2005, p. 655)
and (2006, p. 1); Liebenberg (2008, p. 464).
39 Goodin (2003, p. 69).
towards increasing participation in the global market, one has to interrogate

the pedigree of the constitutional values that may find their way into such
transactions. Will private law rules of the global market only allow universal
public values into state commercial transactions or is there room for particu-
larity?
Tensions evidently occur if constitutional values of a particular state are
accommodated. South Africa provides a good example of such tension. One of
the important constitutional commitments in South Africa is the eradication of
historical inequalities. This includes economic imbalances. In order to achieve
this constitutional commitment, the South African state has embarked on a
comprehensive Black Economic Empowerment strategy. In its commercial
dealings the state has committed itself to giving preference to local black busi-
ness.40 However, this preference is at odds with a completely free market and
even more so when judged from a global market perspective.41 The question
is thus how can one instil this specific constitutional value in South Africa
within state commercial transactions using legal tools aimed at creating and
maintaining a barrier-free global market?
Whereas increasing emphasis on accountability and horizontal application
of human rights norms have pushed public law into areas of private legal rela-
tionships, the changing functioning of the state has brought private law much
closer to the centre of the legal structuring of the state, traditionally the
province of public law. This move makes it highly relevant to consider the fit
between existing private law rules and state functions particularly as far as the
facilitating role of law is concerned. However, it is also of critical importance
to maintain the control function of administrative law in relation to state action
in commercial form. A key rationale for adopting traditional public law forms
for state conduct is that such forms constitute public ways of establishing
collective priorities.42 It is not clear that substitute or alternative private law
forms can achieve a similar function in keeping these state choices public.
Accordingly, as Matthew Flinders accurately notes:
From a conceptual point of view the increasing institutional hybridity poses questions
about the legitimacy and accountability of the state, particularly in light of the fact that
traditional understandings and procedures in relation to these concepts have histori-
cally been wedded to a state structure that to some extent no longer exists.43
40 Ministries of Finance and Public Works (1997); Preferential Procurement

Policy Framework Act 5 of 2000; Preferential Procurement Regulations Government
Notice R725 Government Gazette No. 22549 of 10 August 2001. Bolton (2007, pp.
260–96); McCrudden (2007, pp. 245–67).
41 Bolton (2007, pp. 296–306); McCrudden (2007, pp. 273–80).
42 Peters and Pierre (2006, p. 215).
43 Flinders (2006, p. 225).
I think much of this is true of administrative law and a need consequently

arises to consider new legal tools to facilitate and control state functions.
Given the hybrid nature of the new state and its conduct, those new tools can
only be fashioned through a synergy of public and private law rules.
4 ENFORCEMENT OF NORMS
When one turns from the substance of the applicable norms to their enforce-
ment in state commercial relationships one again encounters complexity. If
state commercial activity is viewed as private law based, enforcement of the
applicable norms largely rests in the hands of the parties to the transaction.44
It is left to the parties to monitor the counterparty’s compliance with the terms
of the regulatory system and, most importantly, to seek judicial intervention,
that is legal sanctions, in instances of non-compliance. Enforcement in the
regulatory system created by contract law is thus left to the discretion of the
particular parties to the transaction.45 Self-regulation in this respect is not
restricted to the choice to enforce the regulatory rules, but extends to the
manner of enforcement and largely the content of the legal sanctions invoked.
At the one end of the spectrum, a party can seek an order for specific perfor-
mance from a court to strictly enforce the rules of the agreed regulation, or, at
the other end, it can negotiate an amendment to the regulatory rules in the light
of the counterparty’s non-compliance with the original rules. Hugh Collins
describes this dimension of contract law as ‘an extreme example of responsive
or reflexive regulation’.46 Reflexivity is a highly desirable characteristic of
any regulatory regime. Reflexive regulation, in essence, attempts to be sensi-
tive to the expectations and realities of the particular parties to the regulated
social practice.47 The aim is to position the regulation vis-à-vis the communi-
ciation system(s) in terms of which the parties perceive the social practice in
such a way as to produce the desired regulatory outcomes without distorting,
diminishing or corrupting the social practice within such communication
system(s).48
The high measure of control by the parties over enforcement holds a
number of key advantages for the regulatory system.49 One major advantage
44 See Quinot (2007, pp. 355–7).

45 Collins (1999, pp. 66–7).
46 Collins (1999, p. 67).
47 Collins (2004, p. 24).
48 Collins (2004, p. 24); Teubner (1988, p. 311).
49 See Quinot (2007, pp. 356–7).
is the system’s ability to easily accommodate changing circumstances, both

within a particular transaction and generally over time. Unanticipated (and
unpredictable) changes in circumstances (both from external factors and the
regulation itself) pose a lower regulatory risk since the parties can readily
reposition within the system of regulation. While the parties may not be in
control of all (or any) external influences on the transaction, they are to a
significant degree in control of the way in which the applicable norms are
enforced (if at all), thus empowering them to reposition themselves. A further
consequence is that the normative framework is accordingly exceptionally
stable and can achieve high levels of certainty.
There is, however, a downside to party control over enforcement of the
applicable norms in state commercial transactions. The problems flow from
the same concern with individualism of private law regulation noted above.
Here globalization again emerges as a relevant force. Hugh Collins argues that
where multiple communication systems simultaneously inform the social
practices being regulated one such communication system inevitably will be
prioritized above the other(s).50 This is especially the case when it comes to
enforcement of norms. Collins notes that in contract law economic analysis is
prioritized above other communication systems.51 Contract law thus achieves
reflexivity in the context of commercial transactions aimed at wealth maxi-
mization by exchange of goods and services.52 The emphasis on market inte-
gration as a central tenet of globalization underscores this privileging of an
economic view of the social practice. However, where there are different
communication systems at work, contract law inhibits reflexive regulation
since it generally restricts the parties’ ability to give effect to alternative
communication systems in terms of their self-regulation.53 In this regard
Collins notes:
Starting with the paradigm that contractual practices are dominated by discourses of
economic interest, the general rules of contract law will always encounter difficulty
in achieving an adequate level of reflexivity when they encounter contractual prac-
tices which give priority to other frameworks of communication.54
These arguments hold particular implications for the reflexivity of contract

law regulation of state commercial activity.55 Although economic dialogue is
50 Collins (2004, p. 26).

51 Collins (2004, p. 27).
52 Collins (2004, p. 27).
53 Collins (2004, p. 27).
54 Collins (2004, pp. 27–8).
55 The constitutional principle of cost-effective public administration in fact
requires such analysis; see the Constitution s 195(1), (b), 217(1).
certainly present in the context of state commercial activity, such system of

communication is neither the only relevant one nor the most important one. As
I argued above there are many competing values underlying state commercial
activity. In the present context one can view many of those as different
communication systems. Good public governance and transparency is one
important such communication system.56 Another is one of morals in which
the state is expected to demonstrate only the highest degree of ethics.57 A third
framework of communication relates to the important transformative goals
inherent in all South African state commercial activity noted above. In the
light of these multiple communication systems shaping state commercial
activity and the priority of most of these over an economic framework in South
Africa, the reflexivity of contract law as regulatory system will be greatly
impaired along the lines argued by Collins above.58
A further problem within private law ordering is the exclusion of third
parties and the public generally from seeking enforcement. The doctrine of
privity of contract in private law states that a contract only binds the parties to
that contract and generally does not have any legal significance for third
parties.59 In the context of state commercial activity the impact of this doctrine
56 See the Constitution s 195(1), s 217(1).

57 See the Constitution s 195(1)(a) and also Langa J’s remarks regarding the
state as moral ‘role model’ in S v Makwanyane and Another 1995 (3) SA 391 (CC) at
para. 222: ‘Implicit in the provisions and tone of the Constitution are values of a more
mature society, which relies on moral persuasion rather than force; on example rather
than coercion. In this new context, then, the role of the State becomes clear. For good
or for worse, the State is a role model for our society’; Ex parte Minister of Safety and
Security and Others: In re S v Walters and Another 2002 (4) SA 613 (CC) at para. 6
and Police and Prisons Civil Rights Union and Others v Minister of Correctional
Services and Other 2006 (2) All SA 175 (E) at para. 82. See also the arguments
presented by Seddon (2004, pp. 12–13) in the Australian context on the government as
‘moral exemplar’ as reason for placing higher standards on government commercial
activities and Davies (2006b, p. 105) on a similar argument in English law. Pakuscher
argues that in German law the state is also subject to higher standards irrespective of
whether it acts under private or public law because of its obligation to ‘pay respect to
the basic rights of the Constitution’. He submits that for this reason ‘the administration
cannot evade judicial control, even if the State uses means of private law’, Pakuscher
(1971, p. 285). See also Ehlers (2006, pp. 154 et seq.).
58 This problem is directly related to the paradigm view of contract as a mono-
lithic notion aimed at commercial exchange between essentially two autonomous
parties, i.e. a practice dominated by economic objectives. If one can shift this paradigm
view of contract to embrace a more plural view of contractual practices, it may be
possible to enhance reflexivity of contract law in diverse contexts such as state
commercial activity.
59 Van der Merwe et al. (2004, pp. 245–50); Furmston (2001, pp. 500 et seq.);
Lubbe and Murray (1988, pp. 15 and 407); De Wet and Van Wyk (1992, pp. 2–3);
is to deny third parties locus standi in iudicio to seek enforcement of the

applicable norms, while such third parties may clearly have some interest in
the matter. In many instances of state commercial activity the resultant rela-
tionships can more properly be described as ‘triangular’ or ‘multipartite’ than
‘bi-polar’ as the privity doctrine would imply.60 The state typically contracts
with a private service provider to render services directly to the public.
Although only the state and private service provider may be parties to the
state contract, and thus have privity in relation to that contractual relation-
ship, the members of the public relying on this service clearly also have an
interest in that contractual relationship. In more general terms the public at
large has an interest in the proper execution of state functions, even when
those are commercial in nature, so that the public generally should have
standing to enforce regulation of that conduct,61 something which privity
prevents.62
These enforcement problems in private law ordering of state conduct result
in a legal system that primarily advances a normative agenda heavily skewed
towards individual or sectarian interests rather than public interests. Within
such private law framework a party to a transaction is highly unlikely to
approach a court for the purpose of ensuring transparency, accountability or
responsiveness in state conduct. A party is, rather, likely to approach a court in
order to ensure that her bargain is realized and her patrimonial interests hence
protected.63
So does the answer from an enforcement perspective simply lie in public
law forms of scrutiny? Would a fairly liberal approach to judicial review solve
all of these problems? In my view it would not.
Minister of Public Works and Land Affairs v Group Five Building Ltd 1999 (4) SA 12
(SCA) at 17. For discussions of the historical development of this doctrine in common
law see Atiyah (1979, pp. 412 et seq.) and in civil law Zimmermann (1992, pp. 5–6, 34
and 45).
60 Harlow and Rawlings (1997, p. 140); Freedland (1994, p. 99); Baxter (1984,
p. 58).
61 Mitchell (1954, pp. 236–7) notes that one of the specific results of the
development of a separate institution of administrative contract in France is that ‘the
rights of third parties are enlarged both as to claims as beneficiaries under the contract
and as persons interested in the operation of the administration.’
62 Collins (1999, p. 306).
63 There may of course be a happy coincidence between these two different sets
of purposes, e.g. seeking damages from an organ of state following corruption in a
tender process may result not only in the aggrieved applicant recuperating her wasted
costs, but also in fighting corruption in public administration and hence advancing
responsible, ethical governance. However, these overlapping purposes are merely coin-
cidental and there is no necessary link between them.
A public law remedies regime would certainly allow for much greater third
party involvement in the enforcement of norms.64 Furthermore, public law
remedies generally grant much more discretion to courts in fashioning appro-
priate orders.65 This flexibility enables courts to respond meaningfully to the
complexity involved in these cases and to tailor the enforcement of the applic-
able norms to achieve the desired regulatory outcome66 rather than simply
blindly enforcing rules found to be applicable. Public law causes of action also
align much closer to direct enforcement of normative constitutional values.67
64 In South African law locus standi in terms of s 38 of the Constitution that

governs the enforcement of fundamental rights, including the right to administrative
justice, is certainly much more generous than standing in private law matters.
65 Section 172(1)(b) of the Constitution provides that courts ‘may make any
order that is just and equitable’ when deciding a constitutional matter. This is echoed
in s 8(1) of the Promotion of Administrative Justice Act 3 of 2000, which governs
administrative law judicial review. In English law Lord Woolf MR likewise notes in R
v HM Coroner for Inner London South District Ex p Douglas-Williams [1999] 1 All ER
344 at 347: ‘When it comes to exercising this discretion I cannot suggest a better test
for a court to apply when deciding whether it should give relief than that it should be
“necessary or desirable to do so in the interest of justice”’; on the flexibility of public
law remedies in English law, also see Woolf et al. (2007, pp. 886; 903 et seq.).
66 An excellent example of the effective use of this discretion to account for the
complexity in the review of public tender cases is the order in Millennium Waste
Management (Pty) Ltd v Chairperson, Tender Board: Limpopo Province and Others
2008 (2) SA 481 (SCA). In this case the court had to fashion a remedy following its
finding of reviewable irregularities in the award of a public tender. At the time of the
review the relevant contract was well underway and involved critical public services,
which the relevant contracting authority could not provide on its own account. The
court noted at para. 23 that ‘[t]o set aside the decision to accept the tender, with the
effect that the contract is rendered void from the outset, can have catastrophic conse-
quences for an innocent tenderer, and adverse consequences for the public at large in
whose interests the administrative body or official purported to act. Those interests
must be carefully weighed against those of the disappointed tenderer if an order is to
be made that is just and equitable.’ The court consequently formulated an innovative
order to cater for all of these interests. It ordered the contracting authority to evaluate
the mistakenly excluded tender of the applicant against the successful tender within a
given timeframe. Only if the authority concluded that the applicant’s tender ought to
have been accepted, rather than the successful tenderer’s one, would the initial tender
award be set aside and then only with prospective effect. The order of invalidity would
thus not result in the tender award being void from the outset. The court furthermore
expressly underlined this effect by ordering that the successful tenderer will remain
entitled to any moneys due to it under the contract up to the date it is set aside. See
Quinot (2008b, pp. 119–20) and Quinot (2008a) para. 2.4.
67 While the values that are expressly endorsed in the Constitution, e.g. in ss 1
and 195, are not directly enforceable, they are closely aligned to a number of rights in
the Constitution that are justiciable. Causes of action founded on such rights therefore
closely resemble direct enforcement of the constitution values. The best examples in
However, recognition that state commercial activity attracts public law

remedies, such as the South African view that all public tender processes
are subject to judicial review in terms of administrative law,68 raises prob-
lems of its own. A liberal judicial review jurisdiction undoubtedly has
adverse implications for the state’s efficiency and effectiveness.69 Public
law regulation places increased burdens on the state when compared with
other (private) market participants. The higher these regulatory burdens are,
the less likely the state will be to compete or fully benefit from free-market
competition.70 It should be fairly obvious that this effect largely under-
mines the very purpose of fulfilling public functions via market means.
Norm enforcement via judicial review poses a significant regulatory
burden. Even where reviewing courts are highly deferential and apply very
low levels of scrutiny to the state action at issue, the mere availability of
judicial review holds serious efficiency implications for the state.71 Quite
often a claimant can effectively halt government programmes72 and/or
the South African context are the values of dignity, equality and freedom, which are
recognized as foundational to South African constitutional democracy in ss 1, 36 and
195, but which are also guaranteed as justiciable rights in ss 9, 10 and 12 of the Bill of
Rights. On the role of these values in constitutional adjudication see Transnet Ltd v
Chirwa 2007 (1) BLLR 10 (SCA) at para. 16; Minister of Home Affairs v National
Institute for Crime Prevention and the Re-Integration of Offenders (NICRO) & Others
2005 (3) SA 280 (CC) at para. 21; Bhe & Others v Magistrate, Khayelitsha & Others
2005 (1) SA 580 (CC) at para. 50; De Reuck v Director of Public Prosecutions
(Witwatersrand Local Division) 2004 (1) SA 406 (CC) at para. 62.
68 Steenkamp NO v Provincial Tender Board, Eastern Cape 2007 (3) SA 121
(CC) at para. 21.
69 Quinot (2007, pp. 426–33).
70 Teubner (1988, p. 306) notes that in the regulatory crisis experienced in the
modern welfare state: ‘State interventionist law is supposed to be one of the main
obstacles to reaching the goal of allocative efficiency’; Khoza and Adam (2005, p. 95);
Davies (2006b, pp. 99 and 114) (noting the potential increased price implications of
applying strict public law regulation to state contracting).
71 Quinot (2007, pp. 426–8).
72 Judicial review proceedings, especially in a commercial context such as
public tenders, are often preceded by applications for interim relief to freeze the rele-
vant administrative action pending the outcome of the review. On the impact of interim
relief under EC procurement rules applied in English law, see Arrowsmith (1992b, pp.
100–101, 111–14). She argues that inconvenience to either the public or administration
because of the delay in execution of government functions caused by judicial review
proceedings may be a factor motivating courts to deny interim or final relief and that
English case law seems to suggest that such factor will weigh heavily against interim
relief in public procurement cases. A similar approach seems to emerge from recent
South African judgments, particularly regarding interim relief. In Digital Horizons
(Pty) Ltd v SA Broadcasting Corporation and Another (unreported, High Court of
South Africa, Witwatersrand Local Division, case no 2008/19224, 8 September 2008),
delay their execution considerably73 by simply instituting review proceed-

ings, especially where there is no screening mechanism to filter judicial
review applications.74
A final issue regarding norm enforcement by means of public law remedies,
which is particularly relevant from a globalization perspective, relates to the
central role played by national courts. Regulatory review of a state’s conduct,
approaching the traditional judicial review in national courts, is not easily
achieved at the international level. International arbitration, which is often
favoured in international commercial transactions, is mostly ill-suited to
enforce norms that reflect particular public value systems, such as those found
for example, the court refused interim relief pending judicial review of a public tender
award despite strong evidence that the relevant tender process was reviewable. In
refusing the interim relief Malan J notes at paras 28–29: ‘The public obviously has an
interest in the outcome of this application: a failure by the first respondent to comply
with its FIFA obligations will not only be embarrassing but also affect international
perceptions of the first respondent as a national broadcaster … The risk in this matter
is concerned with the first respondent’s ability to comply with its FIFA obligations
should the interim relief be granted. To my mind the respondents have shown that this
consideration outweighs the applicant’s right to administrative justice. It would, more-
over, not serve the public good if the interim relief sought is given and in the circum-
stances not be “just and equitable”.’
73 It is of interest to note that the EC Directive 89/665, which contains the reme-
dies for the enforcement of EC public procurement rules, expressly provides in art 2(3)
that review proceedings need not have an automatic suspensive effect and in art 2(4)
that interim measures may be denied when the negative consequences outweigh the
benefits, Arrowsmith (2006b, p. 376).
74 Following the judgment in Steenkamp NO v Provincial Tender Board, Eastern
Cape 2007 (3) SA 121 (CC), the (even abstract) possibility of a review application
succeeding has now seemingly resulted in a general standstill period following the
award of public tenders in South African law, during which time the parties to the
public contract proceed with performance under the contract at their own risk should
the contract subsequently be set aside. In his majority judgment, Moseneke DCJ held
at para. 52: ‘Even where there is a delay [in bringing review proceedings of a public
tender award] and a court nonetheless set aside a tender award, I do not accept that
ordinarily a prudent and diligent successful tenderer whose award is reversed later is
without remedy. He or she too may not leap without looking.’ The minority expressly
rejected this argument, stating at para. 83 that ‘it would be an undesirable consequence
for the performance of government contracts, were successful tenderers to be anxiously
looking over their shoulders in case their contract should subsequently be declared
void. Moseneke DCJ impliedly criticises the applicant (it “should have curbed its
commercial enthusiasm”) for being quick off the starting blocks in seeking to perform
its contractual obligations. We cannot agree. In our view, it would be highly
undesirable to suggest that a successful tender applicant should hesitate before
performing in terms of the contract, in case a challenge to the tender award is success-
fully brought. Such a principle, in our view, would undermine the constitutional
commitments to efficiency and the need for delivery which are of immense importance
in a specific state party’s constitution.75 The main problem with arbitration,

however, is the same as with traditional enforcement mechanisms in private
law, namely that it largely excludes third party interests.76 Moreover, it is not
always clear that a state party is able to contract out of its own national courts’
public norm enforcement jurisdiction in this way.77
to both government and citizens alike’ (footnotes omitted). Also see Quinot (2008b, pp.
111–14) where I argue that the adverse impact on the state is not restricted to a delay
in performance under government contracts, but that there are also significant cost
implications for state commercial activity following the approach taken in the
Steenkamp judgment.
75 Note, for example, the debate in arbitration circles about what law to apply in
such instances, particularly whether it is only the relevant state’s own administrative
and/or constitutional law that should be applied or whether international law and/or
principles should also find application, see Bühler and Webster (2005, p. 111). For a
comprehensive analysis of this dilemma in international investment arbitration, see
Choudhury (2008, p. 775).
76 An interesting development in international commercial arbitration that
clearly highlights this defect in traditional arbitration practices is the recent amendment
of the rules under the Convention on the Settlement of Investment Disputes Between
States and Nationals of Other States (ICSID) to provide for third party briefs in arbi-
tration proceedings, even without the consent of the primary parties, Choudhury (2008,
pp. 816–18). Also see De Feyter (2007b, pp. 87–9).
77 It is acknowledged in common and civil law systems alike that the state gen-
erally has the power to enter into international commercial arbitration agreements and
bind itself thus to norm enforcement by means of international arbitration; see Weigand
(2002) Part 4 for accounts of the approach in 10 different legal systems; Sutton and Gill
(2003, p. 89); Bühler and Webster (2005, p. 107). It is noteworthy that a number of
systems take a more liberal approach to organs of states’ capacity to enter into interna-
tional arbitration agreements in comparison with domestic arbitration. France is a good
example, where art. 2060 of the French Civil Code, which restricts public entities’
capacity to enter into domestic arbitration, has been held not to apply to international
arbitration agreements, see Gaillard and Edestein (2001, p. 648). However, it is not
always clear in the context of state commercial activity that a dispute is a commercial
one and is thus properly subject to commercial arbitration i.e. that the decision to which
the dispute relates is arbitrable. See Bühler and Webster (2005, p. 110 fn 148) where it
is noted that some states that used to argue that public entities are not able to enter into
(international) arbitration agreements now rather argue that the issues are not arbitra-
ble. Also see Bühler and Webster (2005, p. 111). A state party may for example refuse
to perform under a contract claiming that such performance will unlawfully fetter its
executive discretion to act in the public interest. Whether an assessment of this argu-
ment is a commercial question is open to doubt. Even if such a dispute is a commercial
one under a broad interpretation of commercial matters – see e.g. the definition of
‘commercial’ in the UNCITRAL Model Law on International Commercial Arbitration
in Redfern and Hunter (1999, pp. 1–28) – questions remain about whether it is appro-
priate or desirable to have international arbitrators decide on what public interest
demands on executive discretion are.
5 PRIVATE AND PUBLIC IN LAW AND SOCIAL

PRACTICE
As is evident from the discussion above, the legal control of state commercial
activity raises questions about the legal distinction between the public and the
private. This is one context where the two seem not only to meet but indeed to
merge. While these questions are certainly not new – legal scholars have been
grappling with the private–public distinction for a long time – I think the
context of state commercial activity raises these questions in interesting ways
and forces a careful reflection on the role of the distinction in legal method-
ology. Of particular interest in this context are the divergent responses from
legal scholars to the treatment of the public–private distinction when thinking
about regulatory models for the legal control of state commercial activity.
These range from arguments pointing to the erosion and artificiality of the
distinction78 to calls for increased emphasis on distinct legal treatment of the
public and the private.79
One pertinent question is whether the continued debate or disagreement on
the distinction between rules of private and public law is not in fact the
strength of the dichotomy in the sense that it keeps a creative tension alive that
constantly keeps the door open for new solutions to emerge. Applied to the
context of state commercial activity this means that the constant uncertainty of
whether rules of private law, say general contract law, should apply to the
exclusion of or in addition to general rules of administrative law enriches the
legal analysis by reminding us of the multiple legal perspectives on a single
social practice. The challenge in this regard is to come up with a legal method
that will allow substantive evaluation of a matter in terms of various legal
perspectives without killing off or denying some of the options from the start
or early on in the analysis.
Looked at from a different angle, the legal control of state commercial
activity provides a bridge between systems of private and public law along
which notions from both can pass to the other side, thereby enriching legal
responses in terms of both systems. I think this provides a helpful context to
assess measures originating from the two systems side by side and to identify
and evaluate shared and divergent principles and values. This may be helpful
to break through the excessive conceptualism that often obscures similar aims
within the two systems. Let me give an example from the South African
78 See Baxter (1984, pp. 62–3); Hoexter (2007, pp. 149–50); Seddon (2004, pp.
18–19; 38 and 325); Cockrell (1993, p. 227); Aronson (1997, pp. 52 et seq.); Cane
(2003, p. 248).
79 Turpin (1972, pp. 99-100); Davies (2006a, p. 113; 2006b, 122; 2001, pp.
198–207).
context. In South African administrative law reasonableness plays an impor-

tant role as a standard for all exercises of public power. In labour law, fairness
is a central principle against which employer conduct is measured. When
administrative law and labour law converge in the context of public employ-
ment, as one instance of state commercial activity, the possiblity arises to
assess whether these standards of reasonableness and fairness relate to the
same basic concern with the exercise of power. Developing such understand-
ing may consequently be extremely helpful in refining legal responses to the
exercise of all forms of power. Furthermore, an understanding of a particular
legal system’s core response to general societal concerns facilitates the
comparative engagement with other systems, the value of which can easily be
lost in conceptual differences.
On a more substantive level, the bridge created between private and public
law by legal control of state commercial activity can also assist in working out
the application of human rights norms, too often viewed as either of a public
law nature or originating from public law, in private legal relationships. The
familiarity of private law with the legal forms used by the state to achieve
public purposes in the context of state commercial activity can smooth the
transition of these norms from exclusively public law application to general
legal application. In South African law it is of some interest to note the osten-
sible difference in response to the direct application of public law norms, in
the form of administrative law standards, to state commercial activity80 and
the response to the application of public law norms, especially from the bill of
rights, to mainstream private law conduct, that is, legal relationships between
purely private subjects.81 If the former is experienced as less problematic, the
question emerges as to whether administrative law can function as a medium
for the translation of public law norms to private law settings.
In Europe there is a development that seems loosely similar to this one,
which relates to the issue of harmonization of private law. The story of EU
public procurement control has been one of increasing harmonization cutting
80 It is now generally accepted that administrative law rules apply to state

tendering in South Africa; see Chairperson, Standing Tender Committee and Others v
JFE Sapela Electronics (Pty) Ltd and Others 2008 (2) SA 638 (SCA) at para. 19;
Steenkamp NO v Provincial Tender Board, Eastern Cape 2007 (3) SA 121 (CC) at para.
21.
81 As Moseneke DCJ notes: ‘[C]ourts have shown remarkable slowness or
perhaps reticence in allowing the fundamental rights or values of our Constitution to
influence the law of contract through direct or indirect horizontality … courts often
acknowledge their duty to develop the law of contract in harmony with the Constitution
but stop short of embracing the consequences of contextual or purposive adjudication’,
Moseneke Annual Public Lecture 2008 15–16.
across the public–private divide.82 While harmonization of mainstream private

law fields such as contract law remains highly controversial and a European
Civil Code seems still far off,83 the high levels of harmonization of public
procurement regulation in the EU is far less controversial and seems to me to
be furthering commercial (legal) harmonization through the back door. While
there is an undeniable public law dimension to state contracting, it should not
be forgotten that such action is also of a private law nature. In fact, state
commercial activity is increasingly looking more like the commercial conduct
of any other significant market player and less of a uniquely public character.
Given the high level of harmonization in EU public procurement law, one can
ask what impact the hybrid characteristic of the legal control, that is, the addi-
tion of administrative law to the angle of approach, has in achieving such
harmonization.
6 CONCLUSION
In summary, state use of commercial action raises two distinct concerns for
administrative law.
Firstly, increased levels of state commercial activity can be viewed as
attempts by the state to recapture some of its power, which in its traditional
political form is shrinking in favour of economic or market power – the state
thus tries to gain market power. To the extent that administrative law is tradi-
tionally interested in control of political power and is not really geared to
check economic power, administrative law will have to transform to pay much
closer attention to economic form and power if it wants to continue its func-
tion of legally steering state power or exercises of public power.
Secondly, traditional forms of administrative law, especially but not exclu-
sively in common law systems, are simply not adequate to facilitate state
participation in the market. Other, more commercial, forms will have to be
developed or internalized within the administrative law framework if admini-
strative law wants to remain relevant in structuring state action.
The question in substantive law is thus how to structure the legal framework
for state commercial activity in a way that facilitates the social reality of this
phenomenon without distorting it; that is, a question of reflexive regulation. If
the framework is an administrative law one, the administrator is in control of
the relationship premised on public instruments of authorization and enforce-
ment, which implies high levels of public involvement. If the framework is a
82 See Arrowsmith (2006b, p. 337).

83 See Miller (2007, p. 378) and generally Hesselink (2006).
private law one, the parties to the transaction are in control of the relationship
on a notionally more or less level playing field to the exclusion of all others.
The latter framework enables the parties to optimize their respective interests
through the transaction; that is, a transaction will only occur on the terms that
serve the interests of the parties to the transaction. The problem for the state is
that it needs to adopt this latter framework if it wants to effectively compete
in the (global) market, but in doing so it necessarily denies the complexity of
its conduct and thereby undermines the possiblity for truly reflexive regula-
tion.
When I read the literature on the legal control of public procurement I often
get the sense that the field is simply viewed as one of technicalities. Typical
questions are: How is an organ of state to go about identifying the preferred
bidders in a public tender process? To what level must the tender specifica-
tions be detailed in the bidding documents? What scope is there for post-tender
negotiations? What procedure must be adopted vis-à-vis all tenderers follow-
ing an award decision? This loses sight of the fact that the legal control of
public procurement (and state commercial activity more generally) can
provide us with important insights at much more general levels – such as to
the legal nature of the state and its relationships, the role of judges in both
controlling and facilitating state action, how to deal with multiple perspectives
on and interests in a single legal action, how the various parts of the puzzle
that make up the legal system – both in relation to substantive areas of law and
institutional actors – relate to each other, and eventually also the relationship
of law and social practice. I think that theoretical analysis of the legal take on
state commercial activity can be of tremendous value in starting to think about
some of these issues.
As Matthew Flinders notes: ‘It may well be … that the boundaries of the
state may offer valuable new civic governance arrangements in which
members of the public can be reconnected to the public realm, no matter what
type of institution delivers the service.’84 I think the area of state commercial
activity, existing at the boundaries of the traditional state, offers us an inter-
esting context to explore the responses of our legal systems to the complexity
of our social reality.
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PART IV
Corporate governance
8. Globalization: selected developments
in corporate law
Bas Steins Bisschop*
1 INTRODUCTION
The present globalization is largely based on the past. This is particularly true
in the corporate world, where corporations are engaged in business on a global
scale whilst maintaining their national and traditional organizational form.
Concentrating on the organizational form of doing business it is remarkable to
note that, notwithstanding the general and systematic differences in national
jurisdictions, in respect of the corporate organization and governance of the
national corporations the commonalities are more manifest than the differ-
ences. In this chapter we will review these commonalities. The corporate orga-
nization may have appeared to be insufficient to face globalized crises such as
the current credit crunch, which has led from a US financial problem to a
global economic crisis. Nevertheless, there seems to be no reason to funda-
mentally amend or change this more or less common form of corporate orga-
nization in order to prevent the reoccurrence of similar crises. At the end of
this chapter we will cautiously explore whether the South African transition
from apartheid to a modern democracy presents lessons learned that can be of
use in resolving global crises.
In Section 2 we will discuss the historical foundation of the corporate orga-
nization which can be traced back to the Netherlands in 1602. In that year the
Dutch invented a corporate system in which the entrepreneurial activities were
separated from the financing of the enterprise. The provision of capital served
to finance the business of the corporation without the investors being fully
exposed to the commercial risks incurred by the corporation. The investors
became shareholders providing capital to the corporation, enjoying limited
liability, but at the same time having the benefit of sharing in the profits and
wealth of the corporation.
* Prof. Dr. Bas T.M. Steins Bisschop is professor of corporate law and corpo-
rate governance at the universities of Maastricht and Nyenrode and a solicitor in The
Hague.
211
In Section 3 we will establish that this form of corporate organization has

survived in the major jurisdictions of our time. In particular we will review the
features that characterize the similar forms of corporate organization in the
US, the UK, France, Germany, Italy, Japan, Brazil, Russia, India and China,
thereby drawing an almost global picture of the corporation. In this review we
will not concentrate on the differences between the various jurisdictions, but
concentrate on the common characteristics in order to verify whether the orig-
inal corporate model of 1602 survived into the present time. In this section we
will conclude that indeed there appears to be a basic organizational form of the
modern corporation that is shared in the jurisdictions just mentioned.
Notwithstanding these shared characteristics, there are also marked differ-
ences. These are discussed in Section 4. One aspect thereof is the distinction
between the so-called shareholder and stakeholder models. In the first model
the goal of the corporation and thus the corporate governance is primarily
linked to serving the interests of the shareholders, whilst in the latter model the
interests of the other constituencies of the corporation are taken into account
as well. These differences do not validate, however, a conclusion that the
governance of the corporations existing in these various jurisdictions materi-
ally differs from jurisdiction to jurisdiction. Even in this respect there is a
global similarity in the corporate form of doing business.
In Section 5 we will discuss some of the main challenges to the corporate
system described in the previous sections. Although there is a general trend to
react to these challenges by imposing regulation, it should be noted that the
law, or regulation, cannot be the sole remedy to corporate misbehaviour or
crises. Additionally, we will conclude that the challenges do not seem to
require a fundamental change of the corporate form or governance of the
modern firm.
There are inherent limitations to the effect of legislative action and reaction.
Some of these are summarized in Section 6, where the concept of integrity is
also discussed.
In order to overcome these limitations to the resolution of the current global
economic crisis, in Section 7 the process to achieve such a resolution is
defined as a transition from one period into another. This approach makes
possible a cautious comparison with the transition that took place in South
Africa after the abolition of apartheid.
An equally cautious conclusion of this chapter is that no major or funda-
mental changes are to be expected in the global corporate organization or
governance, but also that there may be some lessons learned from the South
African transition period. Some of these lessons may be useful tools in the
efforts to improve corporate governance, not only through regulation but also
by introducing ‘integrity’ as a cornerstone for corporate organization and good
governance in order to avoid recurrence of the present global economic crisis.
Selected developments in corporate law 213
2 THE VOC: HISTORY AND PRESENT1

The VOC (Verenigde Oost-Indische Compagnie), founded in 1602, was the
first institutionalized trading company to have many of the attributes of the
present public limited company. The VOC participated independently as a
legal entity in socioeconomic affairs and its long-term objective assumed that
the administrators and financiers alike would come and go. Compared with
similar legal forms inside and outside the Republic of the Netherlands prior to
1602, the VOC’s strategy was oriented to far larger scale and longer term busi-
ness activities. The main focus was no longer on a specific route for one or a
few expeditions to distant shores, but on monopolizing, initially with the help
of government, the trade with the East for the long term.
2.1 Foundation of the VOC
Even before the foundation of the VOC, people in several countries had
thought about how to spread the risks of business activities. In the late
sixteenth century, the Amsterdam merchants had to acknowledge that the
extremely lucrative trade in goods from the East was dominated by others.
Holland and Amsterdam had no trading post of their own on the trade routes,
and they had to depend on others who did, such as the Portuguese who
defended their trading interests well with the support of their government.2
The geopolitical relations of the time, including the fact that the Netherlands
was at war with Spain, made it impossible to acquire independent international
concessions for undertaking (protected) expeditions. Amsterdam was forced to
restrict itself to the role of mere intermediary, without access to the large prof-
its being made with the import of goods, especially spices. The Amsterdam
administrators then decided to end the situation, and ultimately to create a
double monopoly. They wanted both international domination of the trade in
spices from the East and Amsterdam to be the definitive European trading city.
Achieving these objectives necessitated sailing and securing the trade routes.
For this purpose in 1602 a company was formed which obtained a patent
from the Republic giving the mandate for a trading monopoly for the East. The
Republic provided constitutional protection to guard the national interest
embodied in the Republic’s trading interests. The corporate interest would
therefore appear to coincide with the national interest in a certain sense. The
major initiators of the VOC were the merchants, in particular those from
Amsterdam, rather than the Republic or the individual States.
1 Steins Bisschop and Wiersma (2002, pp. 37–54).

2 Van Dillen (1958, p. 12).
A novelty, at any rate in the Republic, was that a general appeal was made
to the public for funding. Financial participation rights called actiën were
issued to the participants. The name actiën is derived from the expected enti-
tlement (action) to dividend and the prospect that the capital could be recov-
ered after lapse of the originally intended investment period of ten years.3 The
actiën were later redefined to become more tradable. The trade that followed
was lively.
The VOC was not a partnership of investors, traders or businessmen, but an
independent entity with legal personality. The VOC therefore participated
independently in commercial life and pursued its own interests and not primar-
ily the interests of its financiers. These own interests included (the total of) the
interests of those involved in the legal entity, which we today would refer to
as stakeholders, as well as the interest in the continuity of the business oper-
ated by the legal entity founded for the long term.
2.2 ‘Act of Magic’
An important part of the VOC’s social and financial success can be attributed
to the chosen new legal structure with its capital supply from somewhat arbi-
trary participants distinct from those who conducted the corporate business.
The VOC’s corporate model was based on a separation between the functions
of business and undertaking on the one hand and financing on the other hand.
This separation resulted in a division of powers, rights, interests and entitle-
ments. From the VOC’s viewpoint, the supply of share capital by the partici-
pants meant it could permanently use the capital acquired to finance the
enterprise, not through loan capital but by using it without any repayment
obligation. The enterprise had the capital at its almost free disposal as the capi-
tal contributors, the investing shareholders, had no right to call or reclaim their
capital contribution. However, from the investors’ viewpoint, this capital
supply would not lead to a lasting loss of liquidity (up to the amount of the
capital contribution), because the shares in the VOC could be sold without the
VOC being involved. This structure, with this form of financing, therefore
resulted in permanent liquidity for both the VOC and the investor. American
literature refers to this as an ‘act of magic’.4
The way in which the VOC was financed through the contribution of share
capital strongly resembles the way in which the modern corporation is
financed.
3 Which right the investors ignored as actiën traded above par.

4 Lowenstein (1998, pp. 90–91). Volmer also draws attention to the innovative
element of the VOC’s permanent capital in Volmer (2003).
2.3 Shareholders’ Rights in Relation to the Corporate Organization
Although the shareholders have no right to reclaim their investment from the
corporation, they have the right to control their investment through essential
shareholders’ rights. The nature of these rights and how they can or may be
exercised are the quintessence of shareholdership and of the debate on the
subject both now and at the time of the VOC. The current corporate gover-
nance debate and its counterpart in the early decades of the seventeenth
century are both concerned with the desirable corporate legal structure, which
is based on a dualistic system in which the board is charged with the manage-
ment of the company and the investors monitor the company’s performance
through the exercise of their controlling rights.
The shareholders’ rights are exercised in the context of the organizational
form of the enterprise. It is interesting to note that the organizational form of
the VOC does not fundamentally differ from the form adopted by contempo-
rary firms. As did the VOC from 1602, the modern corporation may be consid-
ered to have characteristic features, which are described in a comparative
review of the corporate form in certain jurisdictions.5 These features are legal
personality, limited liability, delegated management under a board structure,
transferable shares and investor ownership. Of these, only legal personality
requires intervention by the legislator, who must specifically provide for the
award of this status to corporations. The other features are generally also
covered in national legislation, but in theory they could also be contracted
between the corporation and the relevant party with whom the corporation is
engaged in business. In respect of these elements the law serves as a default
system on which the parties may rely but from which they may also deviate.
Legal personality allows a firm to conduct business in its own name and at
its own risk and on its own account. The statutory privilege of legal personal-
ity permits the firm not only to engage in business independently from its
shareholders but also to have and own assets and incur liabilities.
Limited liability therefore is the complementary characteristic of legal
personality. In the corporate organization, the providers of capital, the share-
holders, and those who are responsible for the usage thereof, the board, have
the advantage of not being liable for the debts incurred by the corporation in
its own name.
Delegated management under a board structure is closely connected to the
previous characteristics, as the independence of the corporation is the result of
the shareholders having ceased to conduct business themselves and having
delegated doing business – and therefore incurring risks – to the legal person,
5 Kraakman et al. (2009).

and of the fact that the shareholders have not delegated unconditionally but
have secured control through the functioning of a board.
Transferable shares are required to maintain the separation between the
corporation and its shareholders. In Section 2.2 of this chapter we referred to
the almost magical function of the capital contributions by shareholders, as
this form of financing results in permanent liquidity for both the corporation
and the investing shareholder. The corporation may use the contributed capi-
tal. The contributing shareholder, however, does not lose but maintains liquid-
ity in about the amount of the contribution. The maintenance of the liquidity
of the capital contribution is dependent on the tradability of the shares. In
public companies such liquidity is maximized. In joint venture companies the
liquidity is almost absent.
Investor ownership is a somewhat misleading term. ‘Ownership’ is an
absolute right to administer and dispose of the object of ownership. It is clear
that shareholders have no such rights in respect of a corporation, let alone its
assets. The term ‘ownership’ is a remnant of the times before the separation of
financing and managing and should be translated into the term ‘control’. The
main control powers, and therefore the essential decision rights of the general
shareholders meeting, are the powers to appoint and dismiss management
(including the power to instruct management), to adopt the annual accounts
(including the profit and the profit distribution), to decide on any matter
concerning the capital of the corporation (including issuance and redemption
of shares and decrease of capital), and finally, to determine ‘the rules of the
game’ (including amending the articles of association or the corporate statute
and the decision to liquidate the corporation). In almost all jurisdictions under
review, corporate law provides that these are exclusive rights of the general
shareholders meeting.
2.4 Conclusion
The foundation of the VOC was inspired primarily by the strategic economic
considerations of its founders. Other motives had to do with trade policy. The
interests of the founders, the later shareholders, were therefore paramount.
However, the initial focus on making profit from the trade with the East gave
rise to other and broader objectives, resembling the objectives of present
multinational corporations. During the life of the VOC, the investors’ control
function was strengthened following incidents similar to today’s bookkeeping
and other corporate ‘scandals’. The VOC was also oriented to continuity, so as
to serve the interests of the participants and the public interest. This then also
implied that the interests of a much wider circle of parties involved in the
success of the VOC had a strategic influence on the decisions of the VOC.
The history of the VOC ended almost two centuries after its incorporation,
in the period 1795–98, for commercial and political reasons which foreshad-
owed today’s commercial and political situation, including short-term specu-
lation, over-leveraging of equity capital, over-valuation of assets, lack of
supervision by the investors, uncontrolled agency problems, inefficiency on
the part of the supervising governmental authorities and so on.6
The end of the VOC, however, did not mark the end of the corporate form
invented by its founders. The five characteristic features described above in
Section 2.3 have continued to exist in the modern corporations of the jurisdic-
tions inspected in the comparative review,7 namely the USA, the UK,
Germany, France, Italy and Japan.
These countries represented the major players in the international and
global economy until recently. In this comparative survey we also include the
emerging economies of the BRIC countries, Brazil, Russia, India and China in
order to establish whether or not there is a fairly global form of corporate orga-
nization taken by modern corporations.
3 THE BRIC COUNTRIES

In the following subsections we will briefly review the corporate organization
of each of these jurisdictions in a nutshell.
3.1 Brazil
The financial crisis of the beginning of the twenty-first century, which has
expanded into a global financial and economic crisis, also severely hits the
developing countries including Brazil. The Brazilian government has taken
action in order to protect the national interests and has among many other
initiatives asserted that Brazil refuses to be ‘mere coffee drinkers’ on the side-
lines of the richer nations’ meetings.8 Brazil actively engages in initiatives to
restructure organizations such as the International Monetary Fund and the
World Bank to give the developing nations more of a voice in decision-
making. Emerging economies such as Brazil have suffered during the crisis as
a result of falling commodity prices and their dependence on exporting these
commodities. It is in the interest of Brazil not to be victimized by import
reductions and trade protectionism employed by rich countries to overcome
their own national crises. The severity of Brazil’s problems is a test of the
tenability of its corporate system.
6 Frentrop (2002, p. 121).

7 Referred to in Section 2.3.
8 Partlow (2008).
In this connection it should be established whether the Brazilian organiza-

tional corporate structure resembles the structure of the corporations existing
in the six jurisdictions which formed the subject of the comparative research
mentioned above. It appears that the corporate organizational form in Brazil is
largely similar. The flaws in the functioning of the corporate form are
addressed in the corporate governance discussion which concentrates on the
position of the minority shareholders as principals of the majority sharehold-
ers, often representing families, and the resulting need for more transparency
and for access to legal means to protect their interests.9 The issues raised in the
discussions regarding the revision of the Brazilian corporate governance code
confirm the trend to maintain the structural organizational form and to
improve it in the areas of transparency and accountability.10
3.2 Russia
The global crisis of the present times has hit the republic of Russia perhaps
even more. In the early 1990s, Russia terminated abruptly the then existing
form of doing business through state-controlled entities without private
ownership. This change was effected by mass privatization which began
shortly after the raising of the Iron Curtain and the fall of the Berlin Wall in
1989. The privatization took the form of distributing to Russian citizens so-
called ‘vouchers’ which reflected ownership rights in the former state enter-
prises. These vouchers were distributed in the privatization framework and
entitled the holder to proportional ownership rights in the privatized entities.
Those entities were formed as capital corporations resembling the Anglo-
American style corporation.11 The privatization attempted to create a corpo-
rate system with dispersed shareholding, so shifting state ownership into
popular ownership.
The inevitable conclusion must be, however, that this attempt has failed.
Instead of widespread ownership the shares in the privatized corporations’
ownership passed to the hands of oligarchs who engaged in egregious self-
dealing, enriching themselves into unheard-of wealth. The oligarchs became
‘kleptocrats’ and the government did little or nothing to control matters but
allowed corruption, unfair practices, bank and government defaults on both
9 Mallin (2004, p. 200).

10 The Instituto Brasileiro de Governança Corporativa (IBGC) was founded in
1995 and is the greatest advocate of the practices and debates concerning corporate
governance in Brazil. In 2004 it issued the third revised and enlarged edition of the
Brazilian code. Visit http://www.ibgc.org.br to download the code and for more infor-
mation.
11 Black et al. (2000, pp. 1731–1808).
dollar and ruble denominated debt and large-scale tax fraud. Russia’s wealth
in terms of commodities, and especially oil, allowed the system to continue
from the start of the privatization until the credit crunch, as a result of which
Russia was battered by the combined effects of the fall of the oil price, the
depreciation of the ruble, and the unavailability of credit.
This is a very brief summary of events that are widely described in the liter-
ature, of which only a part is used in the present research, as our main focus
here is not on the developments in Russia after the credit crunch but on the
analysis of Russia’s system of corporate law and on the question of whether or
not corporations in Russia have the same or similar characteristics as the
corporations existing in the jurisdictions which formed the subject of the
comparative research mentioned above.
The corporate legislation in Russia aimed to follow the European system
and in particular the German model.12 The resulting corporate structure for
open and closed joint-stock corporations and for closed limited liability corpo-
rations exhibits the aforementioned characteristics,13 but the nature of the
Russian companies differs markedly from the nature of the European corpora-
tions, largely due to the circumstances just mentioned and because of the
undeveloped stock market, a weak banking sector and financial services indus-
try and state interference resulting from expanded regulatory authority.14
3.3 India
The public limited company is the main business form in India and ownership
is predominantly in the hands of corporates, wealthy families and – increas-
ingly – institutional investors.15 The legal system introduced in India on the
occasion of India becoming an independent nation in 1947 to a large extent
consisted of a common law system inherited from the British. In the period
until the reforms in 1991 the government implemented an agenda of measures
which could be qualified as ‘socialist’.16 In 1991 liberalization occurred,
replacing the tight regulatory framework for corporations and central planning
policies by freedom of corporations to manage their own affairs. The corpo-
rate environment, including the securities market, was modernized to facilitate
the emergence of India as a major player on the global market. Additionally,
the Confederation of Indian Industry (CII) published a brochure with the title
12Burmistrova (2006, p. 126).

13Institute of Corporate Law & Corporate Governance (2007). See also
PricewaterhouseCoopers (2009, pp. 31–2).
14 Burmistrova (2006, pp. 123–5).
15 Mallin (2004, p. 198).
16 Armour and Priya (2008, p.14).
‘Desirable Corporate Governance: a Code’. Its purpose was to ‘develop and

promote a code for Corporate Governance to be adopted and followed by
Indian companies, be these in the Private Sector, the Public Sector Banks or
Financial Institutions’.17 Subsequently there was the institution of a corporate
governance commission, reporting in 2000. The key aspects of corporate
governance as identified in this report are accountability, transparency and
equal treatment of shareholders, which basically conform to the corporate
governance principles used in the jurisdictions initially reviewed.18
It is interesting to note that India was less affected by the global financial
crisis than other emerging economies such as Brazil. This may be due to a
combination of factors. The tight regulation of banks and external capital
transactions under the oversight of the reserve Bank of India is mentioned as
an explanation why the investment of India’s capital in ‘toxic assets’ is rela-
tively low. India’s banks seem to remain in a relatively sound financial posi-
tion. On the other hand, there is a marked withdrawal of investments,
especially by US firms, and a sharp decline in the demand for goods and
services. It is expected, however, that India will continue to see a rather
sustainable growth.19
The conclusion in respect of India is therefore that the corporate law system
is based on the Anglo-Saxon tradition, that the effects of the financial crisis
have not resulted in an alteration of the system and that India’s corporate form
will continue to exhibit the commonalities also visible in the jurisdictions
initially reviewed.
3.4 China
Of the emerging economies discussed in this chapter China is the largest. The
developments in China during the last decades have been exceptional and
should also be seen against the background of the ancient history of the coun-
try. Prior to modern times China was undisputedly a, if not the, global leading
economy. This position was lost in the course of the seventeenth century and
China lagged behind the Western world and did not participate in the industri-
alization process. It maintained a feudal system and agricultural rather than
industrial considerations dominated the national policies. In the period from
the beginning of the twentieth century until 1949 the modernization of the
Chinese model included the establishment of Chinese corporations and the
launching of a Company Law in 1904. After the transition of power to the
17 Kumar in his foreword for the Confederation of Indian Industry (1998, p. 1).
18 Mallin (2004, p. 198).
19 Panagariya (2009).
communist party in 1949 the economy changed into a planned economy with
no room for private ownership or other features of the market economy. There
were nationalizations and generally enterprises were state owned and the
economic activity took place in a planned economy dominated by the state.
Gradually and in line with the developments in other socialist countries, the
notion of underperformance, inefficiencies and economic stagnation resulted
in a gradual change toward a market economy as from the late 1970s. It was
only in the late 1990s that the changes were expedited by a reform of state-
owned enterprises into corporations which adopted a more or less Western
style. This coincided with law making, the creation of stock exchanges and
widespread corporatization.
Notwithstanding these developments the State continued to be the owner of
the (shares in the) corporation, hindering efficiency and creating conflicts of
interest at shareholder and managerial levels. These effects were challenged
by introducing modern corporate governance mechanisms without however
departing from the concept of a major if not dominant role of the State. The
path dependency of the developments in China dictated gradual steps and
adaptation in implementing these corporate governance measures whereby the
Japanese and German models were seen as a yardstick.20
There are, however, recent developments and structural changes to the
Chinese economy which have accelerated since WTO accession in 2001.
Competition has increased, government policy is favouring and facilitating
industry by easing regulation, whilst the programme of privatization of state-
owned enterprises continues. In China, a new Anti-Monopoly Law took effect
on 1 August 2008. It is based on various European models and that of the
United States. However, there are some Chinese characteristics that evidence
the important socialist heritage of China’s largely market economy. Article 4,
for example, provides that ‘the State formulates and implements competition
rules compatible with the socialist economy, strengthens and perfects macro
regulation and control, and completes a unified, open, competitive and orderly
market system.’21 The new law is likely to be a valuable tool and protection
for multinationals as well as domestic companies to ensure healthy competi-
tion in the Chinese market.
The conclusion in respect of China is therefore that the corporate law
system is based on the country’s own history. The dominant role of the state
continues although it is diminishing. There is increased acceptance of corpo-
rate governance concepts which are not uncommon in the jurisdictions
20 See Mallin (2004, pp. 183–8).

21 Wang (2007).
initially reviewed. There are marked differences22 between China and these
jurisdictions and the other BRIC countries, but convergence23 of the Chinese
corporate practice towards the common elements of the corporate systems of
these jurisdictions and the other BRIC countries is visible.
3.5 Conclusion
In this section we have verified whether the commonalities underlying the

corporate form in the USA, the UK, Germany, France, Italy and Japan are also
the commonalities underlying the corporate form in the BRIC countries. We
found these commonalities in Brazil and India and to a lesser extent in Russia.
China has a corporate system that is entirely different from the other jurisdic-
tions under review, but it is unlikely that the other jurisdictions will be affected
by the Chinese system, whilst it may be expected that in the future the corpo-
rate governance developments in China, including the orientation on the
Japanese and German structures, will show a convergence of the Chinese
model towards the common characteristics underlying the corporate form in
the other jurisdictions.
The jurisdictions dominating the global economy display organizational
forms which are similar. This means that the term ‘globalization’ applies in
terms of corporate organization. The current credit crunch which has led to the
financial and economic crisis equally has a global nature. Any solution to the
crisis is therefore likely to be found, at least partly, in global remedies.
Corporate law, however, is typically focused on national jurisdictions. A
further analysis of the common organizational form of the corporation may
therefore assist in finding multi-jurisdictional and possibly global tools that
can be used in all jurisdictions. On the other hand, the consistency of the
global corporate system identified in the preceding sections could be chal-
lenged by national cures or measures in answer to the present crisis.
In the following section we will find that also in respect of governance in
the national corporate forms there are global similarities.
4 THE CORPORATION AND ITS STAKEHOLDERS

Against the background of these important global commonalities in the corpo-
rate form of doing business, it is interesting to also highlight the roles and
22 Olaerts states that ‘Although Chinese Company Law has recently been
revised and now contains provisions which can be found in most other jurisdictions, it
is unique in its compilation’, Olaerts (2009).
23 See Wang (2008).
responsibilities of certain of the stakeholders of the corporation. The discus-

sion hereof is required in order to find a corporate law basis for the subsequent
discussion of the causes of the current credit crunch which has led to a global
financial and economic crisis.
4.1 The Main Players in the Corporate Organization
A summary review of the stakeholders in the corporate organization teaches in

the first place that the organizational form is based on the initial capital contri-
bution. The corporate law systems of the jurisdictions under review indicate
that the shareholders are to be considered in their role as individual providers
of capital and as members of the corporate body formed by the shareholders,
namely the general meeting of shareholders. In the second place, the jurisdic-
tions under review provide for statutory arrangements for the role, rights and
responsibilities of the board to which corporate body management has been
delegated by the shareholders. These statutory provisions indicate that the
main tasks of the board are to take responsibility for the strategy of the corpo-
ration, to represent the corporation towards third parties and to conduct the
day-to-day business.
Management and the shareholders meeting are therefore the main corporate
bodies. Of course there are also other corporate bodies such as the supervisory
board in two-tier jurisdictions, shareholders meetings of special classes of
shares, representative boards of shareholders and other possible entities. The
corporation is embedded in an environment that is not dominated by share-
holders and board members alone, but also by other stakeholders.
These other stakeholders are in the first place the creditors, including the
workers, customers, suppliers, financiers and others who are directly involved
in the operation of the corporation. In order to provide protection against
misuse of the privilege of limited liability by management’s opportunistic
behaviour, the corporate law of each of the jurisdictions under review provides
for creditor protection. Creditor protection could be considered the ‘flipside’
of limited liability.
There are, however, also other stakeholders who do not enjoy protection
under corporate law. Corporate existence may have and generally does have
impact on social and environmental interests. The environment, local commu-
nities and society at large could also be considered ‘stakes’ and interest groups
representing these stakes are therefore often also included in the term stake-
holders.
4.2 Shareholder and Stakeholder Models
The shareholder and stakeholder models can be viewed as competing

approaches for management.24 In the Anglo-Saxon tradition the interests of the

shareholders are generally deemed to be the parameter to determine corporate
policy. The equally traditional view in the continental European jurisdictions
is that the shareholders’ interest is not dominant and that the interests of other
stakeholders should be considered as well. There is debate as to whether there
is convergence between the two models and, if so, in which direction.
The shareholder model assumes that the firm is primarily an aggregate of
individuals united by a set of contracts. The characteristic element of legal
personality, referred to above and permitting the firm to own assets and act
independently from its constituencies, receives less emphasis and draws on the
work of Ronald Coase.25 The shareholder model focuses on the maintenance
or enhancement of shareholder value, accepting at the same time that the inter-
ests of the other stakeholders are well served by this emphasis.
The stakeholder model does not concentrate on the ultimate interests of
shareholders, but defines the firm as having a multi-ends purpose consistent
with the common good. The firm is to provide sustainably goods and services
with profit, at the same time satisfying legitimate stakeholder interests. These
interests consist of the interests of managers, employees, suppliers, clients, the
environment, the local community, society at large and perhaps also those
having an interest in ‘corporate social responsibility’.26
When analysing the differences, and possible similarities or overlaps,
between the models, the jurisdictional backgrounds and history in which
specific corporate laws and national jurisprudence originated should be
discounted. This is particularly true when discussing the similarities in the
characteristic corporate forms in terms of key common elements of the corpo-
ration in the jurisdictions mentioned in Sections 2 and 3. In our exploration of
possible global traits of the corporate form, this path dependency should be
taken into account in order to prevent seemingly obvious differences being
established whilst such differences do not relate to structural variances but can
be explained by aspects of legal culture and the persistence of doctrine.27
4.3 Convergence between these Models?
Given the aforementioned competition between the two models it is relevant

to explore the question of whether or not one of these models prevails or is
likely to prevail in the present global circumstances. If such hierarchy is not
24 Melé (2008, p. 2).

25 Coase (1937, pp. 386–405).
26 See for an interesting connection between the shareholder and stakeholder
models, implying a definition of both models, Melé (2008, pp. 13–16).
27 Gelter (2008).
found the question arises as to whether the models will continue to exist sepa-
rately or are likely to develop in such a manner that the differences become
less relevant and that the systems converge and exhibit the same or similar
characteristics.
As mentioned above, the shareholder model places less emphasis on the
characteristic element of legal personality and regards the firm as a means in
the hands of shareholders to optimize their value proposition. The model is
based on the concept that business activity is to be conducted through the firm
if this is economically beneficial to its shareholders. The business activities
should not be organized in the form of a firm when the production of goods
and services can be achieved at lower costs through direct contracting between
the customer and the various producers. When the costs to contract in the open
market for the production of these goods and services, the transaction costs,
exceed the costs when the production is internally organized through the inter-
position of the firm, it is economically efficient to conduct business through
the firm.28 These Coasian attributes of the firm explain the focus on share-
holder value as the paramount and ultimate beneficiary of the business activ-
ity which still survives in the present economic thinking.
A proponent of the shareholder value model is found in Milton Friedman in
his famous article in the New York Times in 1970 stating that the responsibil-
ity of business is to make profit and that the social responsibility of business
is to increase profit for the benefit of shareholders as owners of the business.29
Other advocates of the supremacy of the shareholder model are Hansmann and
Kraakman, who speak of the ‘triumph of the shareholder-oriented model of the
corporation’ on the basis of primarily legal arguments.30 On the basis of
primarily economic arguments Jensen holds that the debate over shareholder
value maximization versus stakeholder interest ‘is often falsely framed as
stockholders versus stakeholders’ and that the real debate is about the question
of whether the firm should have a ‘single-valued objective’.31 On the basis of
the example that it is logically not possible to serve both the goal of maximiz-
ing profit and increasing market share he concludes that managers cannot
serve two masters in the form of shareholders and stakeholders. He rejects in
strong words the stakeholder theory and maintains that any expenditure by the
firm should meet the condition that long-term value is added to the firm to the
benefit of the shareholders.
On the other side of the debate there are arguments that validly question
the theory of shareholder primacy. A representative from the Anglo-Saxon
28 Supra footnote 25. Also see Berle and Means (1933).

29 Friedman (1970).
30 Hansmann and Kraakman (2001, pp. 439–68).
31 Jensen (2001, pp. 297–317).
tradition32 has advanced propositions rejecting the ownership argument for

shareholder primacy, stating that shareholders own shares and not the assets of
the corporation. Although shareholders are the residual claimants or risk bear-
ers, they are only one of the several groups that have such rights. Strict share-
holder primacy may be inefficient and discourage other stakeholders from
making their contribution, whilst such a contribution may be essential for the
firm’s success. At the same time it is recognized that shareholder primacy does
resolve, as a second-best solution, the problem of accountability of the direc-
tors. Directors can be held accountable on the basis of the stock price, but it is
difficult if not impossible to hold them accountable when the task is formu-
lated as serving the interests of all constituencies of the firm. Nevertheless
empirical evidence indicates a tendency away from the shareholder model and
into the direction of the stakeholder model.
The stakeholder primacy is widely accepted in continental Europe. In
certain jurisdictions the model is embedded in the statutory corporate form,
such as in Germany and the Netherlands where co-determination by workers
is assured in their direct or indirect participation in the formal governance of
the firm.33
Against the background of the credit crunch and the economic crisis result-
ing therefrom, the claims for supremacy of the shareholder model should be
reconsidered. Shareholders, and – in recent years – in particular activist share-
holders such as hedge funds, have taken a short-term view and exercised
shareholders’ rights in order to serve such interests, at the same time aligning
the interest of management with such short-termism. The resulting lack of
transparency in combination with leveraging of equity capital in an extreme
form was one of the reasons for the credit system coming to a halt and for the
subsequent outbreak of a global general economic crisis in 2008. Of course,
shareholders suffered losses, but the pith is more in the damaging effects of the
crisis on the interests of other stakeholders, and the pretence that shareholders’
control disciplines management has gone silent.
It is for this topical reason that in present times the resolution of the crisis
in terms of corporate governance is not based on the shareholders’ primacy but
more on taking due account of stakeholders’ interests. It is unclear whether
this implies a clear choice for the one or the other model. Perhaps the devel-
opments of corporate law in the UK in respect of the revision of the
Companies Act in 2006 indicate that there is a convergence between the two
competing models without the need to declare the victory of one of these
models.
32 See Stout (2002, pp. 1189–1209).

33 See Baums and Scott (2005).
4.4 The Enlightened Shareholder Model
The revised Companies Act 2006, s.172(1) provides:

A director of a company must act in the way he considers, in good faith, would be
most likely to promote the success of the company for the benefit of its members as
a whole, and in doing so have regard (amongst other matters) to
(a) the likely consequences of any decision in the long term;
(b) the interests of the company’s employees;
(c) the need to foster the company’s business relationships with suppliers,
customers and others;
(d) the impact of the company’s operations on the community and the environment;
(e) the desirability of the company maintaining a reputation for high standards of
business conduct; and
(f) the need to act fairly as between members of the company.
Prima facie, this newly introduced provision seems to indicate that British
corporate law adopts the stakeholder model. This conclusion, however, should
be nuanced.
In the first place, the common law tradition dictates a duty of the directors
to act in the best interests of the company, whereby the term ‘company’ should
be put on the same footing as ‘members’ or ‘shareholders’. This dominant
position of the shareholders’ interests has not been negated by the amendments
to s. 172(1). The reference to the stakeholders’ interests set out in paragraphs
a–f of this section serves as a guideline for directors to determine whether they
adequately discharge their duties, which are now defined to be to promote the
success of the company.
In the second place, the duty ‘to promote the success of the company for
the benefit of its members as a whole’ confirms the primacy of the sharehold-
ers, although there seems to be an underlying assumption that the six elements
to be considered are elements that strategically or in fact contribute to share-
holders’ interests when duly taken into account by the board.
In the third place, it should be recognized that not the stakeholders but only
the company, and in exceptional cases also the shareholders by derivative
action, can enforce the obligations of s. 172(1). The stakeholders whose inter-
ests are being protected by this clause have no action. This could be different,
for example, in the case of a bankruptcy where the interests of the creditors
have been neglected in violation of s. 172(1). Whether or not the new provi-
sions in the Companies Act will allow actions against directors instituted by
the company, derivative actions by shareholders or actions on behalf of credi-
tors by the receiver in bankruptcy to be successful is a matter to be decided by
the courts.34 The courts will of course rely on the existing body of case law on
34 See section 172(3) specifically dealing with the creditors’ interests.

the common law duty of the directors to act ‘in the best interest of the
company’ and they will also note that decisions referred to s. 172(1) are
commercial decisions which are the domain of the directors who have a wide
discretion to decide what will promote the success of the company as long as
they act in good faith and not manifestly unreasonably.35
The duty of the directors to act in the best interests of the company has been
replaced by the duty ‘to promote the success of the company for the benefit of
its members as a whole’. The term ‘success’ is not defined in the Act but
should be interpreted to mean that a commercial transaction by the company,
represented by its board, should contribute to the long-term increase in the
value of the company. On the one hand, the almost unlimited discretion of the
directors will make it difficult to directly enforce stakeholders’ interests on the
basis of s. 172. On the other hand, a director actively promoting the interests
of certain or all of the stakeholders mentioned cannot easily be held liable by
the shareholders stating that a different strategy would result in better finan-
cial results. It is perhaps too early to conclude that UK law has adopted the
stakeholder model, but it would also seem incorrect to state that the share-
holder model has survived unimpaired by the introduction of the concept of
enlightened shareholder value.
4.5 Corporate Social Responsibility
The discussion on corporate social responsibility (CSR) is a function of the

broader governance discussion and addresses the fundamental notion that
corporations can be seen as forming a part of a triangle between market, state
and civil society, in which corporations owe a duty of care to a wide variety of
stakeholders.36 This notion is also reflected in the UK Companies Act referred
to above where reference is made to ‘the impact of the company’s operations
on the community and the environment’. The concept of corporate responsi-
bility towards ‘People, Planet and Profit’, known as the triple P strategy, is not
a new feature but has existed for decades.37 Even if the Anglo-Saxon jurisdic-
tions were to be seen as being focused on the shareholders’ interests in confor-
mity with the strict interpretation of the shareholder model, the observation
must be that many US and UK companies, as well as many continental
European companies, pursue the abovementioned triple P strategy focusing on
the long-term interest of both the company and its various stakeholders.
Historical examples are the Ford Motor Company claiming to serve social
goals in order to promote the sales of their cars, and Philips aiming to increase
35 Prentice (2008, pp. 150–54).

36 Hamers, Schwarz and Steins Bisschop (2005, pp. 1–40).
37 See note 33.
the output of their workforce by providing social benefits to their employees.

The strategy of the Ford Motor Company was successfully challenged, but the
CSR strategy of Philips remained undisputed. Modern examples are Nike
actively promoting improvement of working conditions in the supply chain
and Shell with its campaign to protect the environment.
4.6 Corporate Interest
The container term ‘corporate interest’ reflects the criterion that is to serve as
a yardstick for the board, and for the other corporate bodies, to determine their
rights and obligations in performing their corporate tasks.
With respect to the notion of corporate interest there is a general trait that
is in line with the findings regarding the shareholder and stakeholder models.
In Section 4.3 we concluded that neither of these models seems to prevail, that
both models will probably continue to exist separately and that the differences
will become less relevant. With respect to corporate interest a similar obser-
vation can be made. In those jurisdictions which embrace the shareholder
model, there are mechanisms counterbalancing the primacy of shareholders’
interests, where such primacy would result in unacceptable prejudice to the
interests of the other stakeholders. In the jurisdictions that are more orientated
to the stakeholder model, the functioning of the various corporate bodies is
already required to observe a broader range of interests than shareholders’
interests alone.
4.7 Conclusion
The separation and differences between the shareholder model and the stake-
holder model may continue to exist in the various jurisdictions discussed
above, but the relevance of the distinction seems to become less outspoken.
The wide powers of the board in the US jurisdictions and the concept of
enlightened shareholder value in the UK, in combination with corporate prac-
tice allowing for CSR, seem to indicate that the interest of the shareholders is
not the dominant factor for the board when determining the corporate strategy.
In these jurisdictions there are mechanisms counterbalancing the primacy of
shareholders’ interests, where such primacy would result in unacceptable prej-
udice to the interests of the other stakeholders. In the jurisdictions that are
more orientated to the stakeholder model, such an assumption of shareholders’
primacy does not exist. In both concepts, the container term ‘corporate inter-
est’ reflects the criterion that is to serve as a yardstick for the board, and for
the other corporate bodies, to determine their strategy.
Above we pointed to the competition between the two models and we
explored the question of whether or not one of these models prevails or is
likely to prevail in the present global circumstances. There appear to be no

significant indications of the supremacy of one model over the other. It is
likely that both models will continue to exist separately but also that the differ-
ences will become less relevant.
It is interesting to note that with the survey of the various jurisdictions we
have proposed an almost global picture not only of the corporate organization
but also of corporate governance. Path dependency and other distinctive
national elements may colour the laws, regulations and practices of national
jurisdictions but this does not diminish the fact that such an over-all depiction
can be made.
5 CHALLENGES TO THE GLOBAL CORPORATE

SYSTEM
Present times, but also many events in the past, have demonstrated that corpo-
rate activity may result in corporate misbehaviour, sometimes even leading to
crises not only within the corporation but also for society at large. The present
credit crunch which has led to a global economic crisis is a striking example
of such an event.
5.1 The Systematic Threat Posed by the Credit Crunch
In financial and economic literature38 there are elaborated analyses of the

causes of and reasons for the present global crisis. For the purpose of the legal
analysis a brief summary is presented. The critical situation began in the US
and was caused when certain home-owners defaulted in the loans extended to
them by banks to finance the purchase of their houses. The collateral in the
form of mortgages to secure the repayment of these loans appeared to be insuf-
ficient. The subsequent loss was not carried by the bank that originally
provided the loan, but by other banks and institutions that had ‘purchased’ the
collateralized loans, not in the form of a novation of the contractual relation
between the lender and the original bank, but in the form of the purchase of a
‘package’ of collateralized loans and other financial instruments that through
‘securitization’ were repackaged in a financial ‘product’. The risk profile and
other properties of these products were insufficiently clear to the national and
international purchasing banks and institutions, which were taken by surprise
by the defaults under the original loans causing the products in which they
were packaged to lose a substantial part of their value. The national and inter-
38 See for example Friedman and Friedman (2009, pp. 1–36).

national trade in these products was extensive enough for these ‘bad loans’ to
result in very serious financial problems for the many banks and institutions
that were involved in such trade. These problems then escalated into an
economic crisis affecting the global economy.
Initially, these risks did not materialize, mainly because of the fact that the
prices of houses continued to rise in the US. Loans that at the outset exceeded
the value of the underlying mortgage could benefit from rising market prices
and become sufficiently collateralized. In 2007 and 2008, however, the rally
on the housing market came to a halt and it surfaced that many of the original
loans were provided to lenders with insufficient repayment capacity and
against equally insufficient collateral. The bankers engaged in the process of
granting the loans and the repackaging thereof were tempted to disregard the
risk of default and of insufficient collateral because of the incentive system
providing bonuses to the bankers who were able to fabricate these products of
securitization. The products became a trade without the market recognizing
the underlying loans, collateral and risks, which trade resembles ‘manias’ that
have occurred earlier in history.39 As a result many US banks and financial
institutions had to accept entire or partial write-offs of these products. This
was also true for banks and institutions in many other jurisdictions as the prod-
ucts were traded on a global scale. These problems threatened their solvency
and continued existence, resulting in bankruptcies and governmental financial
intervention to prevent the collapse of those financial institutions that were
considered to be essential to maintain the economic and financial system.
The granting of these loans which were repackaged into financial products
was the responsibility of bankers who worked under the supervision of their
boards. The boards were accountable to their shareholders. Notwithstanding
these inherent checks and balances the credit crunch and the ensuing economic
crisis occurred. One of the causes of this was the banking remuneration system
through which bankers received substantial incentives as a bonus for concluding
deals in which financial products were sold on the market. It is held that these
bonus systems invited irresponsible behaviour by bankers who concentrated on
the marketing of the financial products without giving appropriate consideration
to the underlying transactions.40 The system of corporate organization and the
division of tasks and responsibilities between the various corporate stakeholders
nevertheless appeared to be incapable of preventing this behaviour.
39 One striking example is the ‘tulipomania’ that occurred in the Netherlands

during its Golden Age. People traded in tulips, some paying as much as the annual
income of a wealthy merchant in those days. Eventually, the trade crashed and the
market evaporated. See Dash (2000). For a more general review see Kindleberger
(1978).
40 Financial Stability Forum (2009).
5.2 The Threat Posed by Hedge Funds
Before and concurrently with the credit crunch, there were other examples
challenging the corporate system in the form of shareholders’ activism that
could be held to be against the interests of the corporation.41 Activist share-
holders seem to have had manoeuvring space especially in the Netherlands. In
some of the other European jurisdictions there are structural barriers checking
the unhindered exercise of power by activist shareholders. In Germany the
‘Depotstimmrecht’ enables banks to vote on the shares deposited by their
clients. The banks appear to often favour the views of management. In France
there are structural barriers as well. French practice shows dual voting rights,
concentration of shareholdings in the hands of families, workers and govern-
ment, and shareholding pyramids. The French government seems to be
prepared to protect ‘national champions’, as was evidenced when the French
President announced that the government would not permit that the vulnerable
position of Société Générale, caused by the speculation losses in 2008 in the
amount of about 5 billion euros in combination with a loss in the amount of
about 2 billion euros resulting from the credit crunch, be exploited, suggesting
that the government would intervene in case of a hostile bid on the shares of
Société Générale. The shares in Italian corporations are often in the hands of
one or more families through direct or indirect participations. Although less
frequently than in the French situation, the Italian government holds shares in
national corporations. Also in Spain corporations are often controlled by fami-
lies. Banks hold substantial holdings in listed corporations but there is no
governmental shareholding. On the other hand, in the United Kingdom there
are no technical or structural barriers hampering the exercise of power by
shareholders.
Analysing these findings in respect of some important jurisdictions of the
European market, the conclusion must be that the creation of a level playing
field on a harmonized market has not been achieved, as a result of the contin-
ued existence and use in the various member states of the EU of a range of
different structural and technical barriers to the exercise of shareholders’
powers.
5.3 The Threat Posed by Bookkeeping Scandals
The examples listed above show governance systems that allowed unrestricted
power and possibilities for activist shareholders who promoted their own
short-term interests, often at the expense of the corporate interest of the corpo-
41 Steins Bisschop (2008).

rations in which they invested. In the corporate governance discussions during

the first years of the twenty-first century, such unrestricted power was gener-
ally considered to have the potential of counterbalancing the factors that had
created the bookkeeping and other corporate scandals. Many corporate gover-
nance codes written or amended in this period specifically refer to the restora-
tion of confidence in the financial markets through tighter and enlarged control
by shareholders and the non-executive board members over management.42
5.4 Other Possible Threats
Corporate law will change as a result of and reaction to the crisis. Additional
grounds will be explored to protect the corporation against shareholder influ-
ence that would be against the corporate interest.
One of these new grounds may be derived from the concept of constitu-
tionalization of corporate law, following the concept of constitutionalization of
private law.43 This notion could be relevant in the case of attempted influence
by activist shareholders or by governments after nationalization of former
public corporations. It is conceivable that the corporation would oppose such
exercise of influence by these shareholders on the basis of constitutional rights
such as the right that ownership be protected.44
Another possible additional complication may be the investments by sover-
eign wealth funds, entities that invest funds of states with substantial surpluses
from base materials and commodities, such as the oil producing states.
Emerging economies like the BRIC countries also dispose of substantial
means. These funds are frequently invested in listed corporations and such
investments give rise to concerns in certain jurisdictions, including the US.
The Chinese state investments in the US in the financial sector (Citigroup,
Merill Lynch, Morgan Stanley, Nasdaq), private equity houses (Carlyle and
Blackstone) and industry (AMD) have generally resulted in substantial losses.
42 Every jurisdiction had to deal with its corporate scandal(s), for example the
United States: Enron and Healy (2003); the United Kingdom: Bank of Credit and
Commerce International, http://news.bbc.co.uk/2/hi/business/3383461.stm; Germany:
Hypovereinsbank, http://www.nytimes.com/1999/10/27/business/international-
business-german-bank-forces-out-executives-after-scandal.html; the Netherlands:
Royal Ahold (De Jong et al. (2005)); France: Vivendi Universal (Coffee (2005)); Italy:
Parmalat (Ferrarini and Giudici (2005)); India: Satyam (BBC report available at
http://news.bbc.co.uk/2/hi/business/7818220.stm); Japan: Livedoor Co. (available at
http://www.reuters.com/article/companyNewsAndPR/idUST10637220070216).
43 Smits (2006, pp. 9–22); Lindenbergh (2006, pp. 97–128).
44 See Protocol No. 1 on the Convention for the Protection of Human Rights and
Fundamental Freedoms as amended by Protocol No. 11, http://conventions.coe.int/
Treaty/en/Treaties/Html/005.htm, accessed 1 May 2009.
These losses will have to be explained to the Chinese National People’s

Congress and it is unclear what the consequences thereof will be. It is not
inconceivable that the Congress will instruct the governmental authority hold-
ing these interests, the China Investment Corporation, to exercise the share-
holders’ rights for political purposes, now that economic or financial purposes
have become largely illusory.
These additional observations regarding constitutionalization and sover-
eign wealth funds may provide supporting arguments to boards when exercis-
ing their discretion in determining the corporate strategy independently. If
legal personality means that legal persons can invoke constitutional rights,
boards could possibly invoke fundamental civil rights to protect the corpora-
tion on the same footing as individuals. If sovereign wealth funds were to use
their voting rights in order to realize political goals that do not correspond with
the corporate goals or interests, boards could possibly maintain that such votes
should be held invalid or otherwise ineffective. As the concepts of constitu-
tionalization and sovereign wealth funds’ influence have rarely been tested in
legal practice, restraint had to be exercised when formulating the above obser-
vations.
5.5 Reflex Responses to the Threats, and Conclusion
There is a general trend to react to the abovementioned threats by imposing

regulation to prevent reoccurrence. The following examples illustrate this.
The credit crunch prompted regulatory action concentrating on legislation,
providing for more supervision of the banking industry by independent corpo-
rate constituents and by governmental agencies, such as central banks or inter-
national supervising authorities. There are initiatives at EU level to implement
reforms to regulation, and in particular to create a European supervisory
regime in tune with today’s cross-border realities. The initial attempts to agree
on such a regime at short notice in 2009 failed but the efforts continue.45
The activities of the hedge funds resulted in reactive regulation to curb
short selling and other techniques manipulating the market or otherwise affect-
ing its integrity.46
The bookkeeping scandals caused renewed emphasis on corporate gover-
nance codes and regulation. In the US the Sarbanes-Oxley Act was introduced
in 2002 to prevent the reoccurrence of scandals similar to the Enron scandal.
45 European Commission (2009).

46 In the Netherlands this resulted in a temporary ban on short selling. Also the
FSA, the regulator of the British capital market, decided to temporarily ban short sell-
ing. In the US, the SEC will share more detailed information with the public on trans-
actions concerning short selling. See Chung and Masters (2009).
At this moment, however, strict compliance appears to bring unintended and

burdensome disadvantages and the Act has the effect that listed companies
now avoid continued listing in the US if possible. It is expected that the Act
will be amended to prevent this and other unintended consequences.47 Another
observation in this respect is that the Enron scandal occurred in perhaps the
most regulated environment in the world and was followed by even more
regulation, without considering possible alternative means to prevent the reoc-
currence of bookkeeping scandals.
The observation regarding the regulatory reaction to the Enron scandal may
illustrate the relevance of the question as to what extent legislative action is or
can be effective if introduced as a remedy against a societal evil, which in the
case of Enron was related to a widespread lack of integrity. This question is
particularly relevant now that the action proposed in reaction to the present
global crisis seems also to concentrate on legislative measures.
It should be noted, however, that none of the threats mentioned above
seems to prompt a fundamental discussion about the corporate form or gover-
nance of the modern firm. Amendments and refinements in respect of corpo-
rate organization and governance, such as the introduction of more
transparency by the board and less manoeuvring space for corporate insiders,
in combination with better supervision, may improve corporate functioning
without completely overhauling the existing system of corporate organization
or governance. Legislative measures to achieve this are being undertaken and
are likely to be undertaken in the near future.
Any of the legislative initiatives will primarily be directed at national laws,
as the conclusion of international law making through treaties or otherwise
will prove to be very difficult, if possible at all. The present crisis being a
global crisis, global remedies will require the consent of national governments
and some of these governments are likely to be unwilling to cooperate inter-
nationally in view of the conflicting interests. An example is that the emerg-
ing states including the BRIC countries will concentrate on growth whilst the
EU countries and the US are likely to place emphasis on protection of the
status quo.
The reflex response to crises in the form of additional or new regulation
should therefore be met with caution. History teaches that such reaction may
be insufficient and the discrepancy between global problems and national
legal systems is a further obstacle to the solution. We will now further discuss
these limitations and subsequently try to identify the additional remedies
required to prevent the reoccurrence of crises.
47 See Parles (2007).

6 THE LIMITATIONS OF LEGAL REMEDIES IN THE

RESOLUTION OF CRISES
With the knowledge now acquired about the bookkeeping and other corporate
scandals during the first years of the twenty-first century, the conclusion could
be that shareholders should and could have used their controlling rights to
timely request and obtain sufficient information to examine the corporate
strategy and to conclude that this strategy was hazardous to the corporation
and its stakeholders. The controlling rights of shareholders would then have
enabled the shareholders meeting to take appropriate measures, including
instructions to the board and if necessary dismissal of board members refus-
ing to follow the instructions.
6.1 Ex Post and Hindsight-Biased Judgments
Nevertheless, no powers or authority could have been exercised with the strict
application of existing rules and regulations. Ex post analysis about the causes
of an event is not always commensurate with what could or even should have
been known at the moment of the occurrence of such an event.
This problem obviously also arises in the analysis of the credit crunch.
There are generally accepted explanations about the driving factors behind the
crisis. One such explanation is related to the banking remuneration policy
under which bankers could receive incentives that corrupted the process of
responsibly financing banking customers. Indeed, with the benefit of hind-
sight, it may be concluded that the options and other financial instruments
offered to senior bankers may have presented incentives to act in their own
interest and not in the interest of the bank or the customers of the bank. It
should be noted, however, that the strong condemnation that is now widely
heard was entirely absent in recent years, whilst the remuneration system was
quite transparent.
The question is therefore whether the ex post judgment is hindsight
wisdom, resulting in functional comprehension of the past that can be trans-
lated into useful strategic measures for the future, or hindsight bias. In the case
of the latter, a possibly better or different explanation is prevented. In the case
of hindsight bias, proper judgment is blurred because the adverse or negative
consequences of the historic act under review are already known and in
analysing such act the adverse or negative consequences are already
discounted. In other words, an objective analysis of a situation is corrupted by
knowledge of the outcome of the event. There are many examples of such bias
in the legal practice. The following example may illustrate this point. A defen-
dant has taken reasonable care, but has nevertheless caused a traffic accident.
His level of care will be reviewed with the knowledge that the level of care
was inadequate to avoid injury. His level of care will therefore seem less
reasonable in hindsight than it did in foresight.48 Another example is drawn
from an American study in which certain possible jury members were asked to
assess whether a given act was reckless: 37 per cent of the group that did not
know about the consequences thought that the act was reckless, but in the
group that did know about the consequences 67 per cent thought that the same
act was reckless.49
Earlier studies had already shown that judges, for example, were largely
unaware of the effect that outcome knowledge had on their perceptions.50 This
ignorance caused them to over-estimate the factual accuracy on the basis of
which they formed their judgment. Knowing about the outcome seemingly
only contributes to understanding the past and actually prevents learning from
it. Knowing about the outcome of ‘the story’ makes that outcome seem
inevitable and predictable, but in fact there is distortion of the perception of
what could have been predicted.51
Analyses of the causes of the current credit crunch which has led to a global
financial and economic crisis may suffer from hindsight bias and prevent
proper and effective decision making in the process of restoration of confi-
dence in the financial markets.
There are also other factual circumstances that have prevented the – theo-
retically available – use of shareholders’ rights, including the feature of
managerialism in the US and the other structural barriers to shareholder
democracy discussed above.
It is therefore appropriate to explore to what extent the efficiency of the
reflex response to crises, namely the strict exercise of existing legal means in
combination with the introduction of new regulation, could be supported by
complementary action contributing to efficient implementation of existing
regulation and creation of new regulation.
The conclusion of these observations must be that there is no clear and
convincing explanation of the causes of the present crisis and that the reme-
dies offered do not warrant a stable, consistent or reliable solution. This is a
rather alarming observation. The proposed remedies in the realm of regulation
should be encountered with modesty about the accuracy of the stated causes
of the crisis and the healing effect of regulation. The uncertainty about causes
and solutions is also exhibited in various recent reactions, of which some are
summarized below.
48 Rachlinski (1998, pp. 571–625).

49 Kroeze (2006).
50 Fischhoff (1975, pp. 288–99).
51 See note 50.
6.2 Confusion
In the course of 2008 the credit crunch appeared to evolve into a global finan-
cial and economic crisis. It was understood that current regulation was insuf-
ficient to cure the underlying causes and problems and that new ways had to
be found to escape from the present delicate situation. The recommendations
and findings were not univocal. Below we present some of the views
expressed.
In October 2008 Alan Greenspan, who had been Chairman of the Federal
Reserve of the United States from 1987 to 2006, admitted to being shocked by
the financial crisis. He advocated more and stringent regulation for banks,
thereby distancing himself from his own earlier wish to have a more or less
entirely free financial market. He considers more regulation to be a prerequi-
site for resolution of the present crisis.
Later that same month the president of the Dutch Central Bank pointed to
the resemblance of the crisis to the tulip mania in 1630 and concluded that lack
of confidence was the main cause of the crisis. He mentioned that the finan-
cial market is especially dependent on confidence in every layer and link in the
system, reliable figures, sound people and well-enforced laws against fraud
and corruption.52 Confidence is interrelated with and based on the integrity of
the market players. The Central Bank would concentrate (more) on the super-
vision of financial sector integrity.
In March 2009 the Caux Round Table issued a reformatted form of the
Caux Round Table Principles for Business, which were first published in 1994.
In the introduction to these Principles the following is mentioned: ‘Trust and
confidence sustain free markets and ethical business practices provide the
basis for such trust and confidence.’ The subsequent seven Principles ‘recog-
nize that while laws and market forces are necessary, they are insufficient
guides for responsible business conduct’. Upon reflection, this view does not
have to differ in principle from the opinion expressed by Alan Greenspan, as
it is widely recognized that new regulation should be paired with a normative
revival outside the strict domain of mandatory law.
In this respect it is interesting to refer again to the general observation that
the remuneration systems in the financial industry are generally and often
mentioned as one of the causes, or even the primary cause, of the present
crisis. As discussed in Section 5 above, the remuneration system for bankers
was initially built on bonuses for ‘selling’ mortgaged loans that were repack-
aged in financial products. In addition to these bonuses there were also other
incentive schemes for bankers, and in particular for bankers engaged in
52 Wellink (2008).
merchant banking who were eligible to receive additional payments related to

the size of the transaction in which their bank was active as advisor, broker or
in another role. The general opinion now formed holds that the remuneration
for bankers, which was brought to an unparalleled high level, was not only
unfair but also contained incentives for individual bankers to steer transactions
in directions which were not related to the interests of the banking clients but
to the personal financial interests of the bankers seeking to achieve bonuses
and other extra payments. The general opinion also holds that bankers should
have realized that their remuneration was disproportional and that the banking
industry itself should have put an end to this. These views can be summarized
by referring to the term ‘perverted’ which is often used to describe the remu-
neration system.53
Notwithstanding the fact that these views frequently seem to suffer from
hindsight bias, the general opinion is that disciplining of this ‘perverted’ remu-
neration system can only be achieved by regulation. Bankers appear to regard
the remuneration system as the main cause of the credit crisis.54 It is also
found, however, that on the one hand 75 per cent of the bank managers think
that the credit crisis demonstrates that the banking sector needs more strict
regulation, but that on the other hand only 36 per cent of the bank managers
think that the regulator must do more to compensate the banking sector.55 At
the European level there is also emphasis on regulation and supervision.56
Another example is that in April 2009 the Dutch Advisory Banking Committee
published its recommendations to improve the functioning of the Dutch bank-
ing sector and to provide handles for restoration of trust in banks. The report
includes recommendations to achieve less influence of shareholders, improved
supervision, limits to remuneration and governmental insurance against failing
53 According to the president of the European Commission, José Manuel

Barroso. See http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/1120
&format=HTML&aged=0&language=EN&guiLanguage=en.
54 In November 2008 the Chairman of KPMG in the Netherlands stated that in
general more regulation is not necessarily required, but he added somewhat contradic-
torily that there should be more supervision and a focus on principle based regulation,
which seems to imply more regulation. In January 2009 KPMG published the results
of a study into 500 banks. KPMG (2009).
55 See the report from KPMG (2009). A press release is available at
http://www.kpmg.nl/site.asp?id=2036&process_mode=mode_doc&doc_id=46550.
56 In October 2008 the European Commission requested the High-Level Group
on Financial Supervision in the EU (the de Larosière Group) to give advice on the
future of European financial regulation and supervision. On 25 February 2009 the de
Larosière Group issued a Report with analyses and recommendations. These recom-
mendations include extensive and motivated suggestions for building a European
system of supervision and crisis management. See http://ec.europa.eu/internal_market/
finances/docs/de_larosiere_report_en.pdf, accessed 1 May 2009.
banks rather than self-regulated solidarity among banks. These recommenda-

tions will probably be incorporated in new regulations.
It is somewhat remarkable that these reactions from representatives of
different stakeholders seem to point to the necessity to introduce new regula-
tion in order to restore confidence mainly through more stringent supervision.
The notion that more and other means could possibly also be necessary condi-
tions for the restoration of stability in the financial and economic markets is
not fundamentally addressed. It seems that the proposed solutions, of which
only a few are summarized above, are based on existing means and especially
regulation without, however, addressing the fact that, notwithstanding the
availability of these means when the crisis developed, they did not prevent the
crisis from occurring. Some of these means were mentioned above, such as the
availability of the shareholders’ rights to control the corporation and the tight
regulation already in place when the Enron scandal occurred. Another notion,
admittedly proposed with hindsight, is that some of the main causes of the
crisis were or could have been known.
6.3 No Surprise, Really
The growth of the capital market debt in the US since 1980 has been stagger-
ing and amounts to some 350 per cent of GDP in 2008. This enormous amount
is financed by national and international investors including foreign govern-
ments. Already because of this fact it should be no surprise that any financial
problem in the US will cause financial problems in the countries of the
lenders.
It is now held that banks and individual bankers did not notice this possi-
ble effect, continued trading with an emphasis on short-term results, put the
savings of their customers at risk when conducting merchant banking and also
ignored other signs on the wall such as the ‘perverted’ remuneration systems.
This general view expressed in politics and seemingly also by the general
public through newspapers has led to reproaches to bankers who have not yet
answered thereto. There are some exceptions where bankers have accepted
responsibility for the malfunctioning of the banking industry and even apolo-
gized for banking behaviour.57 In some countries there were public parlia-
mentary hearings where a critical review took place of the performance by the
banking industry and by individual bankers. On these occasions, however,
only hesitantly were some excuses formulated by bankers. There seems to be
a continued frustration that the causes of the present crisis are largely attribut-
able to the banking industry, but that the banks and the bankers are not being
57 Van den Brink (2008); Deckers (2009).

held responsible and the problems are being solved retroactively by means of
regulation which does not affect the past.
It is likely that this frustration impedes the acceptance and legitimacy of the
legislative efforts to overcome the crisis. For a successful transition to a new
system for the banking industry such acceptance and legitimacy are required. As
we will discuss below, a clearly stated apology by bankers may be a necessary
or useful intermediate step. In addition to the instances mentioned above there
are also other examples of apologies by bankers, but there has not been a clear
and unambiguous statement of apology. One of the reasons could be that apolo-
gizing for the crisis may result in legal liability for the banker taking or accept-
ing the blame. It would be unreasonable to expect that one banker be prepared
to face this liability and provide the other bankers with free-riding possibilities.
Additionally, even if such a banker would be insured under a directors’ liability
insurance, the terms of such an insurance would probably not allow the banker
to admit responsibility and thereby accept liability. To require an apology never-
theless would then lead to a reasonably unacceptable consequence of loss of
coverage. For bankers, this would be an acceptable reason for refraining.
6.4 Further Observations
The bookkeeping scandals and the present global financial and economic
crisis share a common reflex reaction that the rule of law be employed to
prevent repetition and to identify and hold accountable those who have caused
the financial and societal harm. Indeed the rule of law, whether or not amended
to reflect the new social reality, forms an essential instrument to restore the
proper functioning of the financial markets and to indirectly contribute to the
resolution of the economic crisis. Strict, modern and goal-oriented regulation,
however, does not necessarily ensure the required sound behaviour, and may
in some instances even be counter-productive as strict regulation generally
also invites efforts to circumvent strict application.
In the bookkeeping scandals creditors were misled and harmed by intrans-
parency and often by the pursuit of personal wealth by management. The scan-
dals occurred against the background of a strategy directed at growth. In the
credit crisis there was similar misleading and harming of creditors, and
perhaps the events were accelerated by the remuneration culture that was a
specific characteristic of the banking industry. It is understandable that in
corporate governance codes new emphases are placed, including restrictions
on remuneration. Also, in other codes and documents that qualify as ‘soft law’,
provisions are introduced to advance the level of integrity of the corporation
and those who are responsible for its strategy.
Soft law has many precedents and a wide range of applicability. It is gener-
ally international and it colours the hard law notion of ‘reasonableness’. In this
fashion soft law has an important, indirect, function in terms of observance of

hard law. Nevertheless, the sanction on infringing rules of soft law may lead
to disapproval but cannot result in legal sanctioning.
There is no debate that the rule of law and the norm of integrity should not
be contradictory. The rule of law, however, can be inefficient or ineffective and
sometimes even allows infringement of the norm of integrity, as was shown in
the bookkeeping scandals and the present crisis. The term ‘integrity’ is widely
understood and used as a term of reference for proper behaviour, but there are
hardly any leads or concrete points of departure to describe what the norm of
integrity actually comprises. Both the law and integrity can therefore be inter-
preted or used for various and even perhaps conflicting purposes.
In this respect it is interesting to refer to a recent interpretation of the term
integrity.58 Integrity is seen to exist ‘in a positive realm devoid of normative
content’, whilst the adjacent phenomena of morality, ethics and legality are
normative virtues about good and bad, right and wrong and what should or should
not be. Integrity is therefore an objective state or condition of being whole and
complete, and is a ‘necessary condition for workability’. The resultant level of
workability ‘determines the available opportunity for performance’. The term
integrity can then be concretely and tangibly defined as honouring one’s word:
oversimplifying somewhat, honoring your word, as we define it, means you either
keep your word, or as soon as you know you will not, you say that you will not be
keeping your word to those who were counting on your word and clean up the mess
you caused by not keeping your word. By keeping your word we mean doing what
you said you would do and by the time you said you would do it.
This definition provides ‘access to the opportunity for superior performance

… and empowers the three virtue phenomena of morality, ethics and legality’.
This remarkable approach narrows down and crystallizes a philosophical
concept and transforms it into a practical and workable tool that can be used
to achieve ethical behaviour by persons or organizations, and also to measure
the degree of integrity in such behaviour.
However, while this concept of integrity, whether or not in combination
with or in lieu of more philosophical interpretations of the term, may provide
useful guidance to achieve improved corporate governance in the future and
therefore the avoidance of repetition of the bookkeeping scandals and the
credit crisis, it does not contribute to the necessary restoration of confidence
in the financial and economic markets and systems. This restoration of confi-
dence is an indispensable condition for those markets and systems to regain
their proper economic function.
58 Erhard et al. (2007).

6.5 Conclusion
The shareholders’ rights that might have prevented the crises were not used,
which is a statement of fact and not of opinion. Ex post judgments about what
could or should have been done in order to avoid scandals and crises can be
unfair or ill founded. Ex post judgments and proposals to resolve the crisis and
avoid repetition of scandals and crises centre on more law and supervision, but
added to that is a public demand that those who are deemed responsible for the
scandals and the crises apologize and be held responsible. That public demand
must be answered to restore confidence in the financial and economic markets.
In order to judge past and future, ethical standards are required, but perhaps
with the exception of a very practically and newly defined concept of
‘integrity’ it is difficult to catch ethical terms in operational guidelines.
The above does not depict a clear vision of the past and the future. It does,
however, accurately describe the uncertainty about causes and cures for the
present crisis. Yet it is possible to draw the cautious conclusion that in the reso-
lution of the present crisis, at least from a legal point of view, (i) new and
amended regulation is required, (ii) supervision of the financial markets
should be reinforced, (iii) normative elements of ethics should be addressed in
the process, and (iv) confidence in the financial and economic markets must
be restored. Resolution of the crisis cannot realistically be expected without
these four elements forming the basis thereof. It will be difficult, however, to
fulfil the normative conditions, and without a concrete vision of these condi-
tions the drafting and institution of regulation and supervision will be ineffec-
tive. In the next sections this problem will be further explored.
7 SUPPORTING LEGAL REMEDIES IN THE

RESOLUTION OF CRISES
The current global crisis can also be read as a social crisis threatening the inter-
ests of a variety of stakeholders. In such a situation the law cannot provide a
solution, but on the other hand any solution without statutory legitimacy may be
feeble or even untenable. To the extent that the functioning of banks needs to be
changed in order to resolve the problems stemming from the crisis, this is a
financial economic movement that cannot be achieved by the law. The function
of the law here would be to support the solution found by those who do influ-
ence the financial economic environment. These stakeholders include the banks,
the customers of the banks, shareholders, other financiers of banks, industry in
general and the public. The role of government is indirect through taxation and
also regulation. Interference by government through regulation should be seen
against this background and also respect the principle of freedom of people and
the justification of governmental interference (only) if the freedom of others is

at stake or in case the general interest requires such interference. The current
crisis could be seen as a situation justifying governmental action to protect the
general interest that is threatened by the collapse of banks and the transition
from a crisis affecting banks to a crisis affecting the economy in general and
subsequently general social interests. To the extent that the government resorts
to law making the indirect function and effects of regulation should be
discounted when relying on the results of such public action.
Another principle to be noted is that citizens have the right not to be made
subject to law retroactively.59 There are exceptions to this rule but the point of
departure is that legislation should affect future rather than past actions.60 This
necessarily implies that rules in the form of binding regulation can generally
only be effective as from the date of publication onwards and not backwards.
Such rules may be aimed at protecting citizens and at regulating society and
government, as well as governmental agencies, but cannot for instance provide
for new legal grounds that past acts or omissions of banks result in liability of
banks or bankers. The protection of citizens also extends to corporations,
which can even be considered to be entitled to protection under human
rights.61
7.1 Some Further Comments on the Efficiency of Regulation
The above observations regarding the limited effects and indirect function of
law making do not imply that regulation could not substantially contribute to
the solving of crises. Mentioning only a few aspects, it should be noted that
the indirect function of sanctioning certain behaviour may encounter the diffi-
culty of enforcement, but may also have the symbolic effect of establishing
normative guidelines.
Even ineffective or inefficient laws can nonetheless be of value because of
the self-repairing reaction by constituents. Laws are necessarily formulated in
words but should be observed through action. A translation from words into
acts is therefore a necessary intermediate step between observing the law and
reaching the normative goal of the law. Such a translation may entail transla-
tion faults or other imperfect transposition, but because of the normative char-
acter of the regulation the constituent may correct that translation and apply
the rule in conformity with the original intention that was the basis for law
making.
59 Weien (2007, pp. 749–65).

60 Bernitz (2000, pp. 43–58).
61 Steins Bisschop (2008, pp. 32–7).
There can be unintended but positive effects of regulation. An example is

the recent sharp decline of crime in New York. This does not necessarily have
to be attributed to the stringent zero tolerance strategy, not allowing any
infringement of any rule, but could well be attributed, wholly or partially, to
earlier regulation allowing for abortion, which resulted in a sharp reduction in
unwanted children, reducing the chance of neglected children and bringing
down the likeliness that children would turn into criminal youths.62
Other limitations of the regulatory effect are caused by the fact that regula-
tion often contains open norms (such as ‘reasonableness’) that can be widely
interpreted, the translation from words into acts as referred to above, the inher-
ent simplification of the reality by regulation that by definition cannot cover
all aspects of the item or issue regulated, and finally the ex post character of
regulation.
As mentioned above, one of the resolutions offered to address the present
crisis is an increased emphasis on supervision. Supervision is a metaphor for
the desire to feel in control. The introduction of supervision contributes to a
reduction in the feeling of uncertainty and this may be the explanation for the
enthusiasm expressed when the idea of more stringent supervision on the
banking sector was proposed. It is not yet established whether or not increased
supervision is effective. In an earlier publication I have argued that increased
supervision by the supervisory board in the two-tier system in the Netherlands
is seriously hampered by the information asymmetry between the management
and supervisory boards.63 The supervisory board has to rely on information to
fulfil its function, which is to control management, on the information it
receives from management. Management therefore determines itself the infor-
mation to be provided to the supervisory board in the exercise of the supervi-
sory board’s function of controlling management. In general, the problem of
information asymmetry, which would also affect supervision of the banking
industry, cannot easily be overcome.
7.2 Transition
The solution of the global crisis requires a transition from a system that
allowed irresponsible banking practices without proper supervision, which
ultimately caused a global system crisis, to a system with sufficient warranties
against the reoccurrence of these disastrous effects.
Transition under such pressing circumstances requires and implies imme-
diate action to address, ex post, visible causes of the crisis. Examples thereof
62 Levitt and Dubner (2005) Chapter 4.

63 Steins Bisschop (2003, pp. 129–39).
are the stringent provisions which are included in the intermediate regulatory
measures to curb the remuneration of bankers and the introduction of stricter
supervision. Transition also requires addressing long-term possible future
effects, similar to the effects that caused the present situation to occur, that
could threaten the sustainability of the solution, which effects, however,
cannot be known or established ex ante. This poses the prevention paradox
that an infinite number of facts, all in causal relation, appear to have caused
the event to be prevented in the future, and that such prevention should address
all of these facts, which is impossible ex ante.64 This notion prompts legisla-
tors and others responsible for the resolution of the crisis to modesty in setting
the ambitions in respect of controlling the future.
Transition typically coincides with reckoning. The causes and culprits
responsible for the crisis are to be identified and exposed, which is to be
followed by sanctioning. Because of the fundamental equality of people before
the law, legal sanctioning can only take place on the basis of generally applic-
able and existing regulation. An equally important principle is the separation
of powers whereby justice is administered by judges independent from the
lawmaker and the executive. The transition and the reckoning that automati-
cally comes with the transition must therefore respect these principles in order
to maintain political and civil legitimacy.
Drastic regime changes can take place through replacement or transition. In
order to prevent violence, which typically goes together with replacement,
also occurring in a transition, truth or inquiry commissions are an effective and
tested instrument. Although history has shown that violent replacement can
sometimes not be avoided, the necessary reckoning with those responsible for
the previous regime is problematic. This was illustrated in an article in the
Economist of 22 November 2003:
Trials, such as those of Balkan war criminals, only provide a punishment after the
accused have fallen from power and no longer provide a potent threat. If anything,
the threat of trial only serves to make people cling to power at all costs.
Yet the problem has to be addressed because neither truth nor reconciliation is
likely to be possible unless the primary tasks of justice have been carried out.65
The inquiry commissions that operated in the recent decades made efforts
to mitigate these and other negative effects of regime changes. The South
African Truth and Reconciliation Commission is taken as an example, not only
because of its unique authority to grant amnesty, but also because there is
much information about its method of working and the results of its opera-
64 The notion of the prevention paradox is mentioned by In ‘t Veld (2008).

65 Ashdown (2007, p. 99).
tions. It may well serve as a yardstick to be used when considering the neces-
sary conditions for a transition from the present crisis into the next era.
7.3 The South African Truth and Reconciliation Commission66
The transition to a modern democracy that took place in South Africa during
the period in which the release after 27 years’ imprisonment of Nelson
Mandela on 11 February 1990 was a climax and a turning point, is character-
ized by the operations of the South African Truth and Reconciliation
Commission (TRC).
The goals of the TRC were to know and acknowledge the truth about past
human rights abuses, in order to prevent amnesia about these events, to ensure
justice in terms of respect for human rights and the rule of law, acknowledg-
ing that prosecution does not always result in justice in a transitional society,
and to effect reconciliation aiming at conflict resolution and social rehabilita-
tion. The institution of the TRC was a compromise and the result of negotia-
tions between the ancien régime and the new civil power and was given a
constitutional basis in the interim Constitution of 1993, thereby achieving a
legal and even constitutional embedding and legitimacy.
A unique feature of the TRC was its authority to grant amnesty. This was
particularly ambitious against the background of the notion mentioned above
that neither truth nor reconciliation is likely to be possible unless the primary
tasks of justice have been carried out. In the South African context there were
additional considerations for the transition aided by the TRC, with the power
to grant amnesty, rather than revolutionary transition. A military victory of the
ANC and a subsequent tribunal to try those responsible for apartheid and the
blatant infringements of human rights were unlikely to be effective. The
chances that a revolutionary transition would result in democracy and respect
for human rights were very dim. The perspective of a civil war with the
unavoidable atrocities which could be expected to occur, in combination with
the threat that the war would spread over the entire African continent, was
another reason to seek another form of transition. Further, a criminal tribunal
would be very difficult in the multiracial environment of South Africa as the
tribunal would inevitably be seen by some, or by many, as not impartial and
as unjust. The main goal was not prosecution and punishment but the restora-
tion of the rule of law. All these elements resulted in a negotiated agreement
between the two parties, the ANC and the ancien régime.
66 Literature is abundantly available. I have drawn on the general impressions

gained from various sources and present my own findings based thereon. Some works
were particularly helpful and I have also used these to find research references. These
works are Srakin (2004) and Ellian (2004).
The TRC, as it was finally instituted, was an inquiry commission with the
primary task to find and acknowledge the truth, which is a fundamental condi-
tion for a transition to be successful. All of the other similar commissions in
the continents of South America and Africa and the countries Nepal, Germany
and Sri Lanka were also inquiry commissions. The Chilean commission was
the first commission that, in addition to the task to find and acknowledge the
truth, also included reconciliation in its goal. The commission’s objective was
to find the truth and to create on the basis of the truth so found the necessary
conditions for achieving national reconciliation. The truth was also seen as a
necessary condition to restore the dignity of the victims and to make possible
amends for the damage done. The Chilean truth and reconciliation commission
has served as an example and precedent for the TRC. Truth and confession are
linked to justice and forgiveness. There is also an opening to criminal law that
is applied only after the truth has surfaced.
7.4 Amnesty
The TRC was the first commission with the power to grant amnesty. This is
normally the prerogative of government. The power was given within
legally stringent conditions and only after ensuring, through negotiations,
the broad political legitimacy of the concept. In fact, however, there were
relatively few people who actually received amnesty. This was due to earlier
initiatives in the Indemnity Acts of 1990 and 1992. These acts provided
indemnity for thousands of people who did not apply to the TRC for
amnesty. This frustrated the main objectives of the TRC, namely both the
finding of the truth before justice could be administered, whether or not
using amnesty, and the process of reconciliation that is conditional on find-
ing the truth and knowing that justice is done. Nonetheless, the work of the
TRC was approved by a majority of the non-white and a substantial minor-
ity of the white people.
This is a remarkable achievement, especially because the TRC had to
surmount opposition and tensions with political parties, and with the
prevailing ANC, and had to defend itself against claims and allegations of
being partial, predetermined and arbitrary. The TRC had to decide on issues
that normally are considered and decided by courts. This was particularly
true when amnesty was involved. The TRC did not apply the standards of
fact finding that are typically used by courts and, whether or not this was
done in a fair manner, there was a public perception that politics and other
non-legal considerations did play a role in decisions on amnesty requests.
On the other hand, the acceptance of the concept of the TRC proceeding
and granting amnesty was based on the constitutional foundation of this
authority, which guaranteed that the process of deciding whether or not
amnesty was given indeed was a process and not an automatic right of the
person that invoked the amnesty provisions.
8 BRINGING TOGETHER REGULATION, SUPERVISION,

CONFIDENCE AND THE TRC
In the sections above we have considered a wide range of aspects that could
be considered in connection with the present global crisis.
We found a truly global basis on which corporate activity is organized. This
is a relevant notion as the crisis has developed into a global crisis involving
and affecting corporations. In the analysis of the global corporate organiza-
tional form we have identified essential control rights available to sharehold-
ers, which rights, however, apparently have not been used in order to prevent
the crisis.
In exploring the corporate organization we have also addressed the question
of which stakeholders are involved and concluded that the prevailing concept
is that corporations do not function primarily to serve the interests of share-
holders, but that they generally function to serve a much broader base of stake-
holders. Proper and improved functioning of the corporation is therefore in the
interest of such broad base of stakeholders.
Specifically in respect of the shareholders we have investigated to what
extent their rights in terms of shareholder democracy can be exercised in a
comparable manner and here again we pointed to global similarities.
The main players within the corporate organization are the board and the
shareholders and we have identified certain instances in which their power
was abused. We have also noted that the global corporate governance
systems are proceeding to formulate possible answers to these and similar
threats of recurrence of these instances, additionally concluding, however,
that there are limitations when legal remedies are employed to address these
problems.
8.1 Intermediate Conclusion
The discussion of these features has led to the conclusion that solutions to the
corporate scandals and the present global crisis that were focusing on the
introduction of more supervision through regulation could not credibly present
an effective resolution, as the required legitimacy thereof should be supported
by regained confidence in the financial and economic markets. Restored confi-
dence cannot be achieved by regulation alone but must be supported by means
that contribute to the legitimacy of the resolution.
8.2 The Association with the TRC
Establishing this deficiency we noted that the essence of the problem of

resolving the present crisis is that the legal solution should be paired with
measures directed at creating the legitimacy of the solutions in the form of new
and amended regulation. Exploring possible ways to effect this, we compared
the present situation with the situation of transition from a failing political
system into a new and improved system that provided warranties against the
reoccurrence of events that had disqualified the earlier system.
History shows precedents of such transitions and we focused especially on
the institution of inquiry commissions. In this respect emphasis was given to
the South African Truth and Reconciliation Commission. Notwithstanding
justified criticism of the TRC, the conclusion must be that the operations and
effects of the TRC appear to have played a very important role in the transi-
tion from apartheid to a democratic system in which there is respect for human
rights and the rule of law. The proceedings before the TRC contributed to find-
ing the truth as a necessary condition for both administering justice and
national reconciliation. This process was supported by the unique authority of
the TRC to grant amnesty. It is doubtful whether justice and reconciliation
could have been achieved without such authority.
8.3 Recommendation
The key elements of the functioning of the TRC were: dealing with the past by
exposing as many details as possible; allowing for full revelation of the details
that made apartheid an objectionable system; hearing both victims and perpe-
trators; not offering amnesty in general but allowing amnesty only through due
process and on grounds with constitutional foundation; and finally achieving
justice and reconciliation on the findings during the public hearings. The
results of the TRC contributed to the legitimacy of the new system in South
Africa after a social and political transition without the occurrence of violence
and perhaps even civil war that otherwise could have threatened the peaceful
transition.
Resolution of the present crisis also implies transition. The fact that this
crisis is not a political one does not mean that the method of the South African
transition has no significance for its resolution. The widespread demand that
bankers and others responsible for the current crisis apologize and the public
hearings in parliaments of some countries support the contention that any
regulation to resolve the crisis should be accompanied by measures to create
the legitimacy thereof.
Referring to the South African TRC in a discussion of the present crisis and
proposing initiatives that may assist in the resolution of the crisis requires
modesty and the exercise of restraint. With this qualification it is suggested

that on a national scale it is conceivable that inquiry commissions be instituted
with similar tasks and responsibilities as the TRC, aiming at achieving a tran-
sition from a system that allowed the present crisis to occur to a regime with
regulatory protection against recurrence thereof, but also holding the legiti-
macy which is required for the new system to be effective. Consideration of
the elements that constituted the positive and negative effects of the TRC and
designing a similar but adapted process to achieve the effective transition to a
post-crisis period is likely to contribute to a regulatory solution that would
hold the legitimacy that presently does not appear to be available. National
successes could inspire further national and international initiatives.
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9. Globalization and corporate law
Philip Sutherland
1 INTRODUCTION
[I]f asked to specify what they understand by ‘globalization’, most people reply
with considerable hesitation, vagueness and inconsistency. Moreover, much discus-
sion of globalization is steeped in oversimplification, exaggeration and wishful
thinking. In spite of a deluge of publications on the subject, analyses of globaliza-
tion tend on the whole to remain conceptually inexact, empirically thin, historically
ill-informed, economically and/or culturally illiterate, normatively shallow and
politically naive.1
The globalization debate has become intense in recent years as there is much
at stake.2 This chapter will consider the impact of globalization on corporate
law by focusing on multinational corporations (MNCs) and their regulation. In
doing so it will fall into all of the traps mentioned. It starts with an evaluation
of globalization, MNCs and corporate law theory in order to set the stage for
further analysis. It will then consider the different manifestations of corporate
regulation of MNCs in the globalized environment.
2 WHAT IS GLOBALIZATION?
The term globalization has been used to label almost every important phenom-
enon of the last twenty years.3 The concept has become so controversial that it
is almost impossible to give any uncontested account of it. Perhaps the most
helpful, but at the same time vague, definition is that globalization is a ‘process
of intensifying interconnectedness’.4 Not only may this interconnectedness
1 Scholte (2005, pp. 1–2).

2 Stiglitz (2006, p. 288).
3 Scholte (2005, p. 15).
4 Kaldor (1999, pp. 3–4). See also Pinto (2005, p. 477 and 487); Scholte (2005,
pp. 60 ff.). See Scholte (2005, pp. 49ff.) where he describes globalization as the rise in
transplanetary and supra-territorial links between people. See especially pp. 50–52 on
the origins of the term globalization. Stiglitz (2002, p. 9) defines globalization as
255
transcend territory but it may even become disconnected from the concept of
territory, or supra-territorial.5
Globalization is often equated with economic globalization.6 But economic
goals do not actualize in a vacuum.7 The significance of social and political
globalization should not be underestimated. Tavis therefore distinguishes
economic integration, democratization and global governance networks as
elements of globalization.8 However, even this expanded approach pays too
much respect to the economic aspect of globalization. Scholte’s description of
globalization focuses on the reduction of barriers to social contacts: the shift
in the nature of social space.9 For him globalization means that the global field
becomes a social space.10 Humans now often have a global experience of
space. They are more able physically, legally, linguistically, culturally and
psychologically to interact in a global sphere.11 This has created a global
consciousness.12 The global dimension also has been relevant in considering
environmental, cultural, equality, health, governance and security issues.13
Nevertheless, there is little doubt that the economic dimension of globalization
has been at the core of the globalization discourse.14 It is particularly impor-
tant for the purpose of evaluating the influence of globalization on corporate
law and it perhaps constitutes the most advanced form of globalization. It will
accordingly receive considerable attention here although an attempt will be
made to consider other aspects of globalization and their interface with
economic globalization.
‘closer integration of persons and countries’. The Interim Report of the Special
Representative of the Secretary-General on the Issue of Human Rights and
Transnational Corporations and other Business Enterprises (2006), UN Document
E/CN.4/2006/97 (22 February 2006), par. 10 describes the globalized world as one
where ‘actors for which the territorial State is not the cardinal organizing principle have
come to play significant public roles’. Friedman (2000, p. 8) says the overarching
feature of globalization is integration instead of walls and divisions.
5 Scholte (2005, pp. 60–64).
6 See for instance Backer (2006, pp. 287, 290, 309–10); Pillay (2004, pp. 489,
492–3).
7 Pillay (2004, p. 496); Pinto (2005, pp. 487–8). The same will apply on a micro
scale: Friedman (2000, pp. 162–3) who states that an emerging society is more impor-
tant than an emerging market for the survival of globalization.
8 Tavis (2002, pp. 487, 489).
9 Scholte (2005, p. 59).
10 Scholte (2005, p. 61).
11 Scholte (2005, p. 59) does not mention economic interactions but it is
believed that they should be included in the list. See Pinto (2005, pp. 487–8) for the
impact of this on corporate law scholarship.
12 Scholte (2005, pp. 73, 99–101, 116).
13 Scholte (2005, pp. 62–3, 70 ff., 113–15).
14 Saul (2005, pp. 17–20).
Globalization and corporate law 257
Technological advances in communication,15 transport16 and information

technology have made the world a much smaller place.17 The internet, in
particular, has become an important symbol of globalization because it allows
for the instant spread of visual and auditory signals across the globe.18 In some
ways cyberspace has replaced territorial space. But territorial space is also
shrinking. International travel has increased exponentially. This is true for
business travellers as well as for religious pilgrims, migrant workers and
refugees.19
Technological advances, privatization as well as trade and investment
liberalization20 have been central to economic globalization,21 which has
occurred on three levels.22 Many production processes are global. Different
stages in the production and development of products occur in different loca-
tions. Sometimes these activities are performed by large MNCs but global
alliances between different firms also occur frequently.23 Furthermore, glob-
alization has impacted on the behaviour of consumers and marketing to
consumers. Products that are marketed globally are not new but they have
become much more pervasive. Brands such as McDonald’s,24 Nike and
Toyota are instantly recognizable across the planet. Finally, finance has
become global. Round-the-clock trading occurs in innumerable financial
markets.25 Banks provide finance all over the globe and investors maintain
global portfolios.26
15 Scholte (2005, pp. 101–4) on the development of modern communication.

16 See Scholte (2005, pp. 104–5).
17 Tavis (2002, pp. 490, 493); Friedman (2000, pp. 9, 10–11, 46–53).
18 Scholte (2005, pp. 67–8); Friedman (2000, pp. 60ff.).
19 Scholte (2005, p. 68).
20 Backer (2008b, pp. 499, 504); Ratner (2001, pp. 443, 458 ff.) on the impact
of the end of the cold war on the new investment approach. States went from attempt-
ing to control investment to attempting to attract it.
21 Tavis (2002, pp. 492, 501); Stiglitz (2002, p. 9); Redmond (2003, pp. 69,
73–80).
22 Scholte (2005, pp. 70 ff., 107–13).
23 Tavis (2002, pp. 493–4) speaks of the separation of production over several
sites; Friedman (2000, pp. 133–5).
24 McDonald’s is often used to illustrate aspects of globalization, see Fort and
Schipani (2002, pp. 389, 391–2) and below text next to fn. 44.
25 Tavis (2002, p. 491) on the importance of the integration of financial markets
and p. 514 on movement of capital. It remains to be seen whether the current crisis will
impact on this aspect as a driver of globalization; Redmond (2003, p. 77).
26 Scholte (2005, p. 70). Friedman (2000, pp. 13, 112 ff.) refers to investors as
the electronic herd. He distinguishes between the short-horn cattle, who invest in secu-
rities, and the long-horn cattle, or the MNCs that make foreign direct investments.
Globalization in the form of supra-territoriality has eroded the power of the

nation state.27 It is perhaps no coincidence that the term governance has now
replaced government to label the organization of regulation.28 Statism, or
governance that is reducible to the state, has been replaced by polycentric or
dispersed regulation. Mobility of people and information as well as global
economic forces constrain state power.29
Nevertheless, the claims for globalization should not be exaggerated.30
Globalism has not replaced territorialism. Both the territorial and global
dimensions now matter.31 Most newspapers, television channels and modes of
travel are still oriented towards particular territories. The ubiquitous Google
search engine allows country searches on the internet as a primary option.
There are limits to economic globalization: there is still more trade between
Toronto and Vancouver than between Seattle and Vancouver.32 The end of
statism has not meant the end of states.33 Their powers have been amended
and in some ways eroded.34 Weaker states are sometimes impotent in the era
of globalization, but powerful ones such as the United States have arguably
become more influential.35
Furthermore, a considerable proportion of humanity still falls outside
networks of global connectivity. Globalization can link people anywhere but
it does not follow that it links them everywhere.36 Many do not travel interna-
tionally, use global communication methods such as the internet, consume
27 Branson (2002b, pp. 121, 126, 131, 132); Tavis (2002, pp. 489, 501); Stiglitz
(2006, pp. 9, 69); Mayer (2002, pp. 585, 648); Friedman (2000, pp. 190–93); Backer
(2006, pp. 290–91). Although the decline of the nation state in globalization should not
be exaggerated, see pp. 487, 520–23 where it is argued that the state is disaggregating
but not disappearing, p. 294 where it is averred that states will be deprived of their
monopoly powers in the global sphere. See also the analysis of disaggregation of the
state fn. 877. See also pp. 522, 527 where it is called a ‘loss of agenda setting power’.
See also Backer (2007, pp. 1739, 1774–7, 1784). See the cautious approach of Twining
(2007, pp. 1, 35–7).
28 Stiglitz (2002, p. 21) speaks of a system of governance without government.
29 Scholte (2005, pp. 185 ff.).
30 Westbrook (2006, pp. 489, 491–2); Twining (2006, p. 507).
31 Scholte (2005, pp. 75–8); Stiglitz (2006, p. 22). There often are other layers
in between, see Twining (2007, pp. 11–12).
32 Tavis (2002, p. 491). Surprisingly some authors have shown that territorial
distance even matters for the keeping of financial assets, Portes and Rey (2005, p. 269).
33 Saul (2005, pp. 232 ff.) especially on the manner in which the new economic
powers such as China, India and Brazil focus on their national identity and powers.
34 Scholte (2005, p. 141). See Friedman (2000, pp. 209, 145 ff.) who ascribes an
important but neo-liberal role to the state, see also p. xxi.
35 Scholte (2005, pp. 191–2). See Friedman (2000, pp. 367 ff.) on why the US
is the ideal country for success under globalization.
36 Scholte (2005, p. 81).
globally produced or marketed products, or participate in global civil society

associations.37 Even if this group is relatively small, or even if it is conceded
that no one is left completely untouched by globalization, it clearly has not
involved everyone to the same extent.38 Global and territorial spaces are not
separate domains but they overlap and interact in complex ways.39
So has globalization been to the benefit or detriment of humanity? This is
an almost impossible question to answer and depends completely on perspec-
tive. It seems that globalization has had some positive consequences, but that
it has also caused considerable harm. Stiglitz points out that globalization has
been an enormous force for good, that it also has had detrimental conse-
quences and that both the supporters and detractors of globalization overstate
their case.40 Globalization is neither good nor bad. It has the power to do good
and for some it has been highly beneficial. For others it has been an unmiti-
gated disaster.41
One of the most important claims of advocates for globalization is that it
promotes peace.42 Friedman has developed the golden arch theory.43 His
thesis is a simple one: countries with McDonald’s restaurants do not go to war.
The theory behind it is that the loss which interconnected societies incur when
they go to war is so high that it serves as a major disincentive for violent
conflicts.44 There may be some truth in this, but the weakening of states and
uncertainties about security and identity probably have also led to an increase
in local conflicts, civil wars and terrorism.45 The emphasis on market forces
and failure to recognize the importance of politics and culture has provided
scope for narrow and destructive forms of nationalism.46
37 But see Friedman (2000, p. 356).

38 Scholte (2005, pp. 81–2, 119).
39 Scholte (2005, pp. 78–9), see also pp. 79–80 on local–global binaries. See
Kaldor (1999, pp. 3–4) who refers to the process as being contradictory.
40 Stiglitz (2002, pp. 4–5, 248); Pillay (2004, p. 491).
41 Stiglitz (2002, p. 20).
42 This is how Annan (2000, p. 9) saw the benefits of globalization. See Tavis
(2002, p. 533) especially fn. 237.
43 Friedman (2000, pp. 248 ff.).
44 See Tavis (2002, p. 535) who mentions Kant’s idea that democracies do not
go to war. See also on the link between trade and peace Fort and Schipani (2002, pp.
406–8). See the argument of Mayer (2002, p. 651) which indicates that more than just
economic globalization is required for peace.
45 Scholte (2005, p. 30); Mayer (2002, pp. 643–4); See Kaldor (1999, pp. 6–7);
Friedman (2000, pp. 397 ff.). Saul (2005, pp. 258 ff.) and see 41 ff. on the inability of
free trade as such to promote peace. See Fort and Schipani (2002, pp. 415, 421) on
identity conflicts albeit that the authors regard globalization as much more important
as an engine for peace.
46 Saul (2005) contrasts positive and negative nationalism, at pp. 220, 232ff,
Next, globalization has led to an increase and spread of trade, investment,

economic opportunities, efficiency, productivity and higher living standards.
Countries like India, Brazil and China have seen enormous economic growth in
the last two decades and much of this can be ascribed to global trade and invest-
ment.47 Still, even more have been left behind. Moreover, the wild swings in the
movements of international capital and fluctuations of exchange rates and finan-
cial values have increased uncertainty, insecurity and vulnerability.48
The victors in the globalized race win on a global scale; the losers fall
further behind in relative terms. The winners become more powerful and the
losers more impotent. Globalization creates greater inequality or at least
magnifies existing inequalities.49 Again the weak are also sometimes able to
interconnect and mobilize globally. They have also used greater connectivity
to promote their interests. But it is often the weak that are weakly connected
to the globalized world while the current emphasis on economic globalization
has often benefited the economically powerful.50 Many of the rules according
to which global trade takes place reflect the power of developed countries and
this further skews the distribution of global wealth.51 It can rightly be asked
whether those who live in the industrialized parts of the world have ‘devel-
oped the underlying sympathies which are necessary to make the global
community work’.52 In the globalization discourse it is often stated that glob-
alization will promote the interests of all because the rising tide carries all
boats. However, the destructive power of the rising tide especially to the
smaller more fragile boats should not be underestimated.53
243, 246 ff. and 269 ff. He blames this on the insecurities and indignities created by
globalization, see p. 244.
47 Stiglitz (2002, p. 4); Saul (2005, p. 21) but see pp. 205–9; Special
Representative Report (2006) par. 13; Pillay (2004, p. 493); Friedman (2000, pp.
350–51, 355).
48 Stiglitz (2006, pp. 69, 290–91, 292); Saul (2005, pp. 196–7); Friedman (2000,
p. 12); Tavis (2002, p. 514). Rapid change creates opportunities for those who can
exploit them but causes disproportionate harm to those who cannot. The latter group
mostly consists of those who are poor and uneducated, see pp. 517, 520. See further on
the negative consequences of trade globalization Pinto (2005, p. 497).
49 Stiglitz (2006, p. 69); Redmond (2003, p. 77); Pillay (2004, p. 491); Friedman
(2000, pp. 306 ff., 429–31). See Saul (2005, p. 103) who contends that developing
nations generally have not benefited from globalization; Special Representative Report
(2006) par. 13. See also Fort and Schipani (2002, pp. 411–14) with reference to
Amartya Sen and the concept of capability deprivation.
50 Scholte (2005, pp. 33–5); Stiglitz (2002, p. 5). See also Tavis (2002, pp.
513–14).
51 Stiglitz (2002; Stiglitz (2006, pp. 9, 62) where free trade is described as asym-
metric.
52 Stiglitz (2006, p. 21).
53 Saul (2005, p. 202). Or as Branson (2001b, pp. 321, 351) observes, it carries
The emphasis on economic globalization and the neglect of humans, human

rights and social and environmental concerns has meant that many experience
globalization as alienating and disconcerting.54 It creates what Tavis has
referred to as the ‘social void’.55 Investment is done by large funds situated in
developed countries that can move money with the click of a button. The focus
of these investors on short-term gain exacerbates the problem.56 Globalization
has transformed capitalism into hyper-capitalism and this has magnified capi-
talism’s benefits and detriments.57
It has been proposed that globalization has deepened democracy. Electronic
interconnectedness has made it more difficult for oppressive regimes to stifle
information. It has become easier for activists to co-operate. Global civil soci-
ety organizations with considerable power now promote causes globally.58
Global investors sometimes have made investment contingent on countries
meeting certain democratic standards. Conversely, globalization has dimin-
ished the capacity of democratic states to implement policy.59 It has corrupted
political processes.60
Globalization has often been equated with cultural homogenization or
cultural imperialism, especially along American lines.61 Stiglitz observes that
only yachts. See also Mayer (2002, p. 595) who fears that this expression does not give
sufficient effect to environmental issues.
54 Tavis (2002, pp. 514 ff.); Stiglitz (2002, pp. 17, 237); Westbrook (2006, p.
500). See Friedman (2000, p. 423) on how the connectedness and networks of global-
ization can make people feel disconnected, p. 431.
55 Tavis (2002, pp. 513 ff.); Mayer (2002, p. 594); Stiglitz (2006, p. 9).
56 Branson (2004, p. 911); Mitchell (2001, p. 180) fn. 2 colourfully describes
these investors as rapacious jackals and he notes that their activities cannot be coun-
tered by individual shareholders, referred to by him as the living dead and that the
short-termism is enhanced by the activities of short-term day traders.
57 Scholte (2005, pp. 31–2).
58 Special Representative Report (2006) par. 13; Pillay (2004, pp. 492–3, 497,
522). Stiglitz (2002, p. 9) says that organizations such as the Jubilee movement,
Greenpeace and Oxfam are relevant here. Although the rise in importance of NGOs
may itself undermine democracy, see Saul (2005, pp. 152–4).
59 Scholte (2005, pp. 35–7); Stiglitz (2006, p. 21); Saul (2005, pp. 139–40). See
Friedman (2000, pp. 357 ff.), see also below his concept of globalution fn. 99.
60 Stiglitz (2002, p. 8); Saul (2005, p. 140).
61 Stiglitz (2002, pp. 5, 247); Pillay (2004, p. 491); Branson (2001b, pp. 326–7)
and part V; Saul (2005, p. 114) emphasizes that globalization is a western movement;
Friedman (2000, pp. xix, 9, 23, 291 ff., 379 ff.) especially p. 385. See on globalization
and imperialism Westbrook (2006, p. 491) although he observes correctly at pp. 498–9
that ‘McDonalds commands no armies’. See also in this regard Norms on the
Responsibilities of Transnational Corporations and other Business Enterprises with
regard to Human Rights (with commentary), UN Document E/CN.4/Sub.2/2003/
38/Rev.2 (26 Aug 2003), paras 10, 12; these Norms are further discussed below text
next to fn. 371 ff. See on shareholder culture Pinto (2005, p. 490).
globalization has not allowed sufficient time for cultures to adapt to changes.62
It is only natural that increased interactions between cultures will reduce
diversity. Languages have been disappearing at an alarming rate.63 From the
tribes of the Amazon to the Bushmen of the Kalahari, few communities have
been able to maintain their lifestyles in the face of globalization.64
Nevertheless, it would be a complete over-simplification to suggest that global
culture has become homogenized in any substantive sense. Although English
is the global language, it embraces a widening variety of dialects and accents.
Even the icon of globalization, McDonald’s, adapts its menu to accommodate
local tastes.65 The end of statism has allowed minorities to reassert their
cultures. Moreover, the internet and international migration also promote the
establishment of new subcultures.66 Still, loss of culture due to globalization
has caused marginalization and alienation. Thomas Friedman explains the
difficult balance with reference to the Lexus and the olive tree. The Toyota
Lexus is the slick symbol of economic globalization: the high-tech reward for
the successful participant in globalization. The olive tree represents the local
identities and cultures that anchor our lives and gives them a deeper meaning.
Yet people are prepared to go to war in places like Jerusalem and Beirut over
ownership of these actual and metaphorical olive trees. Globalization sees a
constant tug between the forces of the Lexus and the olive tree.67
It seems clear that globalization, even if it is frequently detrimental, is not
going to go away.68 Many who are critical of globalization focus merely on
economic globalization while they utilize forces of globalization to promote
their ideas.69 Stiglitz pithily explains the irony: globalization has united many
against globalization.70 The symbols of globalization have been attacked by
violent protestors.71 These attacks can to some extent be blamed on misguided
62 Stiglitz (2002, p. 8).

63 Friedman (2000, pp. 303–4).
64 Scholte (2005, pp. 80–81).
65 See however Fort and Schipani (2002, p. 391). Contrast this with
McDomination mentioned by Branson (2002b, p. 132).
66 Scholte (2005, pp. 80–81). See Smits (2007, pp. 1181, 1201–3) on the effect
of globalization on legal cultures and their relation to states.
67 Friedman (2000, pp. 29–43). See also pp. 406–7.
68 Stiglitz (2002, pp. 214, 222); Stiglitz (2006, pp. 22–3); See Friedman (2000,
pp. 406 ff.) on whether globalization is inevitable and pp. xxi–xxii where globalization
is compared to the dawn.
69 Scholte (2005, p. 42); Stiglitz (2002, pp. 4, 10).
70 Stiglitz (2006, p. 7).
71 See for the first notable protests in Seattle against the WTO (30 Nov–3 Dec
1999), Genoa at the meeting of the G8 (2001), Geneva against the G8 (June 2003),
Testy (2004, p. 87); for the impact on corporate law, Fort and Schipani (2002, p. 414),
Pillay (2004, pp. 490, 496), Friedman (2000, pp. 9, 327ff.).
anarchists. However, they also give expression to real concerns about certain
aspects of globalization.72 Hence, although globalization is often beneficial, it
also requires substantial rethinking and democratic control.
The worst thing we could do today is attempt to sweep Globalization away … We

would be equally unwise to deny Globalization’s failure and the self-destructive
crisis into which it has slipped … if we cannot calmly cherry-pick the current
system’s strengths and admit its failures we may well provoke protectionism and the
worst nationalism.73
Neo-liberal apologists for economic globalization believe that it will

promote the well-being of the denizens of the planet even though, or perhaps
even because, it emasculates governments.74 Politics is a dirty business and
politicians have failed the planet and its inhabitants. In economics, public
choice theory is used to paint a bleak picture of politics and how it has merely
become the playpen for lobbyists and special interest groups.75 According to
this vision societies will be better off in a world where the role of politics is
reduced and competing firms and customers make choices in effective
markets. Markets will allow citizens to make individual choices. These
choices will allow them to maximize their own welfare and because the deci-
sions are made in competitive markets no participant in the market will be able
to dominate others.76 The function of states in the context of private law
merely should be to enforce the contracts concluded and protect the property
obtained by means of exercises of these individual choices.
However, the current financial crisis and the difficulties with globalization
illustrate the dangers of this neo-liberal approach. Neo-liberalism served as an
important justification for economic globalization but it has now lost some of
its lustre.77 Globalization as perceived by neo-liberals is no longer regarded as
inevitable.78 The neo-liberal approach correctly illustrates that global
economic activities are not unconstrained even if they are not regulated by
states. These activities are restricted by strong market forces. It also underlines
that regulation cannot be made without due respect for economic forces and
72 Tavis (2002, p. 514); Branson (2001b, pp. 325, 351–2); Stiglitz (2006, pp. 16,
76, 79); Stiglitz (2002, pp. 3, 9) states that what was new about these protests was that
they occurred in the first world, p. 244; Saul (2005, p. 167).
73 Saul (2005, pp. 172–3). See Friedman (2000, pp. xxi–xxii).
74 Scholte (2005, pp. 38–41). See also the summary of the argument, Saul (2005,
pp. 15-16, 73).
75 Mitchell and Simmons (1994, p. xviii) but see Udehn (1996).
76 Tavis (2002, pp. 523–4) on the power of markets.
77 Scholte (2005, p. 40).
78 Saul (2005, p. 6).
the power of special interests. However, although it ‘has been a neat trick,
presenting an economic truism through which civilization must be
approached’,79 markets are not sufficient to ensure that globalization will not
have unacceptable consequences. Economic globalization has outstripped
other forms of globalization.80 Furthermore, the economic dimension of glob-
alization requires rethinking.81 Most humans do not want a world that is
merely dominated by the cold and inhuman forces of the market. Human exis-
tence is about more than just markets and efficiency.82 Neo-liberal economic
ideas are premised on the ability of actors to act rationally on the basis of
adequate information in well-functioning markets. In reality these conditions
are often absent.83 Political and legal regulation will be necessary to make
globalization work.
With free markets, powerful and inexpensive communication, and no world govern-
ment, people, capital, and ideas can all float across borders. It is tempting to think
that, in this environment, government and governance matter less. In fact, the oppo-
site is true.84
Regulation will be necessary to establish the institutions that make the basic
capitalistic elements of economic globalization function adequately and to
embed capitalism in the societies in which they have to function.85
79 Saul (2005, p. 14).

80 Stiglitz (2006, pp. 21, 269 and 291).
81 Saul (2005, p. 24).
82 Tavis (2002, p. 514), see the reference in fn. 146 to Rodrick (1997), see the
criticism above, text next to fn. 55, of the social void created by globalization. Saul
(2005, p. 272) speaks of the contempt of theorists for human reality.
83 Stiglitz (2002) at for instance pp. 74 ff., p. 164 and the comments on the Coase
theorem, p. 219; Stiglitz (2006, p. 29), see pp. 199–203 where he also points out that
there is no international competition law to address market failures; Saul (2005, pp. 176
ff.).
84 Fort and Schipani (2002, p. 423). Friedman (2000, p. 158) makes a similar
point in capital letters.
85 Stiglitz (2002, pp. 139, 160–61, 218); Special Representative Report (2006)
par. 21 ‘it is generally believed that economic development, coupled with the rule of
law, is the best guarantor of the entire spectrum of human rights’. See pp. 217–18 on
relating capitalism to different types of societies, p. 219 where the basic problem is
described as ‘market fundamentalism’ and Stiglitz (2006, pp. 9, 26–7, 105). Saul (2005,
pp. 199–201) speaks of reregulation.
3 GLOBALIZATION, CORPORATE LAW AND

MULTINATIONAL CORPORATIONS
So how should corporate lawyers and law respond to the challenges presented
by globalization? When it comes to private law generally, Michaels and Jansen
have observed that an evaluation of the interaction between globalization and
private law has not received the same priority as the study of its effect on
public law. They pose the questions:86
To what extent is the state the blind spot in our thinking about private law? Is private
law beyond the state still ‘law’? Is private law within the state still ‘private’? To
what extent does private law presuppose the state; to what extent is it irreconcilable
with the state? To what extent can private law in the ‘postnational constellation’
learn from its experience before and within the state?
Corporate law is a form of private law in the wider sense.87 But the statements
about the neglect of private law in globalization discourses are only partly true
for corporate law. Therefore corporate law may be one of the port keys to the
understanding of the relationship between globalization and private law.
Globalization in general and economic globalization in particular has impor-
tant consequences for corporate law.88 The MNC personifies globalization.
MNCs raise difficult questions for corporate law. Although there is also inter-
play between globalization and corporate law, on other levels, the emphasis in
this chapter will be on globalization and the MNC.
MNCs have spheres of influence that exceed national boundaries or some-
times even for which national boundaries mean little.89 MNCs became contro-
versial in the 1960s and 1970s and much was written on them before the rise
of globalization as a topic for analysis, if not as a phenomenon. Yet, they are
the instruments of globalization in the form of economic integration90 and they
86 Michaels and Jansen (2006, pp. 843, 844).

87 Although there is no unanimity on this point, this statement is certainly true
for purposes of ‘private law’ as defined by Michaels and Jansen (2006, p. 847) where
corporate law is seen as part of the law of persons. See the cautious argument of
Greenfield (2002, pp. 581, 591 ff.).
88 But see Branson (2002b, p. 126) who states that the growth of these firms
went unnoticed for some time.
89 The term multinational corporation rather than transnational corporation will
be used in this chapter. See the definitions of ‘transnational corporations’ in Norms on
the Responsibilities of Transnational Corporations and other Business Enterprises with
regard to Human Rights, UN Document E/CN.4/Sub.2/2003/12/Rev.2 (26 Aug 2003),
par. 20; Weissbrodt and Kruger (2003, pp. 901, 907–8); Redmond (2003) fn. 1. For a
definition of an MNC, see Backer (2007, p. 1743) and the reference to Dunning (2006,
p. 173) and fn. 1. See on the origin of the concept Duruigbo (2008, pp. 1, 19–22).
90 Tavis (2002, pp. 491–3).
have increased geometrically91 in size and number in recent times, especially

through mergers.92 It may even be asked whether the term ‘multinational
corporation’ remains appropriate to describe corporations that are not bound to
territories. However, the term will be accepted as settled for purposes of this
contribution. Technically MNCs seldom if ever operate as single corporations.
They normally are groups of corporations with holding corporations and hosts
of subsidiaries. But for the most part they can be treated as single phenomena
in the type of discussion that is undertaken here.93
The claims of the apologists for globalization are that MNCs are central to
delivering the benefits of globalization. MNCs are large but bulk is needed to
allow them to compete globally.94 The foreign direct investment of MNCs has
done much to narrow the gap between some developing and developed coun-
tries.95 They help to raise standards and bring products to developing countries
while they provide them with access to global markets. They supply cheaper
products of increasing quality to developed nations.96 The neo-liberal dream
for MNCs is that they:
would be transferring research and development (R&D) efforts to satellite opera-

tions in a meaningful way.97 Some of those receiving satellites would be located in
newly industrializing countries, and, perhaps, in less developed countries as well.
MNCs would be engaged in significant direct foreign investment (DFI). By form-
ing subsidiaries and joint ventures in countries around the globe, MNCs would be
making significant investments in plant and other production facilities, in modern-
91 Branson (2002a, pp. 1207, 1211) with reference to Orts (1998, pp. 1947,
1962); Branson (2002b, pp. 127–130, 351); Branson (2000, p. 669).
92 Branson (2001b, pp. 352–5); Branson (2002b, pp. 127 ff.); Branson (2000, pp.
672 ff.). See the interesting perspective of Saul (2005, p. 190) on the real role of these
organizations.
93 See on this aspect Sub-Commission on Prevention of Discrimination and
Protection of Minorities, The Impact of the Activities and Working Methods of
Transnational Corporations on the Full Employment of all Human Rights, in
Particular Economic, Social, and Cultural Rights and the Right to Development,
Bearing in Mind Existing International Guidelines, Rules and Standards Relating to
the Subject Matter, UN Document E/CN.4/Sub.2/1996/12 (2 July 1996), par. 72;
McLoughlin (2007, pp. 153, 158, 170–73); Weissbrodt and Kruger (2003, pp. 907–8);
Backer (2007, p. 1775); Backer (2006, pp. 303, 363 ff.); Backer (2008b, p. 507).
Compare also the approach of Redmond (2003) fn. 1.
94 Stiglitz (2006, pp. 197–8); Mayer (2002, p. 593). See the criticism of Saul
(2005, pp. 80–81, 176–7).
95 Stiglitz (2002, p. 188).
96 Stiglitz (2002, p. 188); Dickerson (2004, pp. 533, 538) with reference to
Bhagwati (2002) again refers to the rising tide argument; Redmond (2003, p. 71).
97 Stiglitz (2002, pp. 5, 10).
ization efforts, and in human resources so as to be able to decentralize the financial,

marketing, and other ‘nerve center’ aspects of their businesses. Simultaneously,
MNCs would be shaking free from their roots and national origins, converging on
a global model of governance and operation.98
It even has been proposed that MNCs have the potential to promote peace and
democracy.99
However, MNCs and their role in globalization have been blamed for many
of its ills.100 Global civil society has railed against the harms done by
MNCs.101 Indeed some have viewed globalization as the Trojan horse for
global corporations.102 There is considerable doubt whether MNCs indeed
spread the benefits of economic globalization to any real degree.103 The
evidence is that MNCs are often still anchored in particular nations and that
they hoard the benefits of globalization for these nations.104
MNCs have been lightly regulated. Testy lists the reasons for this from a
US perspective:105 a pervasive distrust of regulation and belief in the value of
private ordering, the privileged status of financial capital in corporate gover-
nance and the focus of managers and investors on short-term profits. However,
regulation of MNCs is difficult even if there is a will to regulate.
98 Doremus et al. (1998) especially pp. 84–5 and 93; Branson (2001b, p. 340);
Branson (2002b, p. 124); Stiglitz (2006, pp. 58, 188).
99 Fort and Schipani (2002, pp. 392, 400 ff.) especially pp. 432–3 and the impact
of learning by doing. See Friedman (2000, pp. 167 ff.) who calls this globalution
although he accept the limits of this hypothesis. International capital (the herd) will one
day ride ‘into town like the Lone Ranger demanding the rule of law, and the next day
… stomp right out like King Kong, squashing everything in its path’, see p. 168 while
he accepts that this will be countered by the diminution of the state under globalization,
pp. 190–93.
100 Branson (2001b, p. 352); Redmond (2003, p. 71); Ratner (2001, pp. 446 ff.);
Stiglitz (2006, p. 187) who notes that ‘[t]he left (and the not-so-left) often vilifies
corporations portraying them … as greedy, heartless entities that place profit above all
else’ and ‘[f]or many people multinational corporations have come to symbolize what
is wrong with globalization: many would say they are the primary cause of its prob-
lems’. See the balanced approach in Special Representative Report (2006), fn. 4, at
paras 20–30. See the sources mentioned: Testy (2004) at fn. 8–10. See the Report of
the Special Representative of the Secretary-General on the Issue of Human Rights and
Transnational Corporations and other Business Enterprises, John Ruggie (2008),
A/HRC/8/5, (7 April 2008), par. 16 for a discussion of human rights abuses by MNCs.
101 Backer (2006, p. 309).
102 Branson (2004, p. 912) and fn. 8.
103 Doremus (1998) especially at pp. 84–5 and 93; Stiglitz (2006, p. 58). See the
criticism of Saul (2005, pp. 126, 142, 143) on the type of growth which MNCs produce.
104 Branson (2001b, p. 340); Branson (2002b, p. 124). See below, in this section,
for further discussion of this aspect.
105 Testy (2002, p. 1227–8).
The size and economic mobility of MNCs will allow them to move their
activities to territories where it will be the cheapest to perform them.106 They
will engage in regulatory arbitrage to avoid the costs of complying with stan-
dards that are put in place to protect those who are affected by their activities
(the stakeholders).107 Accordingly, they exploit employees in developing coun-
tries when they manufacture there at low cost and their employees in developed
countries because they are abandoned in favour of plantation production in the
developing world.108 The internal structures of MNCs ‘have again given the
West access to cheap labour abroad’.109 Inequalities of income are maintained
because high-skilled activities are mostly performed in developed nations and
low-skilled activities in developing ones.110 MNCs are blamed for environ-
mental degradation.111 They tend to produce in jurisdictions that allow them to
flout good environmental practices. They frequently are less responsive to
social problems in countries where they invest than local firms.112 The lack of
transparency in some countries allows MNCs to apply double standards.
Seemingly reputable firms do not think twice about bribing officials in devel-
oping countries. In Southern Africa this is illustrated by the corruption of
European engineering and construction firms involved in the Lesotho
Highlands Water Project and of arms manufacturers in South Africa.113
106 Sub-Commission on Prevention of Discrimination and Protection of

Minorities The Realization of Economic, Social and Cultural Rights: The Relationship
Between the Enjoyment of Human Rights, in Particular, International Labour and
Trade Union Rights, and the Working Methods and Activities of Transnational
Corporations UN Document E/CN.4/Sub.2/1995/11 (24 July 1995), par. 101.
107 Arbitrage by MNCs will be analysed in greater detail below text next to fn.
228 ff.
108 Branson (2002b, p. 126); Branson (2001b, pp. 358, 359). See the cautious
statement of Stiglitz (2002, p. 68). The so-called outsourcing problem has been of
particular significance to developing nations, see Stiglitz (2006, pp. 270–72).
109 Saul (2005, p. 149).
110 Sub-Commission on Prevention of Discrimination (1995) at par. 57; Sub-
Commission on Prevention of Discrimination and Protection of Minorities, Working
Document The Realization of Economic, Social and Cultural Rights: The Question of
Transnational Corporations, UN Document E/CN.4/Sub.2/1998/6 (10 June 1998),
(henceforth Sub-Commission on Prevention of Discrimination 1998), paras 1, 8.
111 Branson (2002b, p. 126); Stiglitz (2006, pp. 190–91); Oshionebo (2007, pp.
1, 3); Mayer (2002, pp. 599 ff.).
112 Stiglitz (2002, p. 57); Stiglitz (2006, p. 196).
113 See Information Portal on Corruption in Africa, at www.ipocafrica.org,
accessed 15 January 2009, on corruption in Southern Africa. Stiglitz (2006, p. 191), see
pp. 139–142, 151 ff. on transparency and corruption. Sometimes these concerns are
generally levelled at public corporations: Testy (2004, pp. 91–2). See generally on
corruption and MNCs Fort and Schipani (2002, p. 396). See in this regard Norms with
Commentary (2003) at par. 11; the Norms are discussed below, text next to fn. 378 ff.
MNCs frequently are so big and powerful that they dominate smaller
economies who host them. They prefer to deal with other MNCs and make it
difficult for domestic firms to compete with them or to grow sufficiently. They
may prevent smaller and especially developing countries from establishing
powerful indigenous firms on a broad front even if there are country-specific
comparative advantages.114
MNCs cannot fill the void left by the weakening of nation states.115 The
idea that they can fill the vacuum left by the loss of political power of states
because of globalization ‘does sound a bit silly when you lay it out like
that’.116 The power of MNCs allows them to play politics117 and they may
have a destabilizing influence on the politics of nation states because of their
sheer bulk. Their activities have been particularly damaging in developing
countries that are democratically and institutionally weak and in conflict
zones.118 The lobbying activities of MNCs are a major contributing factor to
the evils pointed out by public choice theorists. MNCs have been particularly
successful in lobbying powerful states to skew the international trade system
in their favour.119 MNCs have on occasion had interests in promoting conflict
and even war.120 Moreover, they have sometimes privatized violence in devel-
oping countries.121 Mining and oil companies in Africa, for instance,
frequently have large armies that guard their interests while they occasionally
support military groups and armies with dubious agendas. Military power that
is not subject to democratic constraints is always dangerous.122
MNCs have been a major contributor to the cultural homogenization blamed
on globalization.123 The growth in the demand for their products and the effi-
ciency of their workforces often depend on reduced cultural diversity and
cultural alienation. Even worse is the allegation that MNCs are not culturally
114 Backer (2006, p. 312); Stiglitz (2002, pp. 68–9); Stiglitz (2006, pp. 6, 192);
Saul (2005, pp. 176–7).
115 Saul (2005, p. 222).
116 Saul (2005, pp. 81–3).
117 Sub-Commission on Prevention of Discrimination (1995) at par. 53.
118 Stiglitz (2006, p. 197); Backer (2006, p. 313); Backer (2008b, p. 505); Special
Representative Report (2006), fn. 4, at paras 29–30; Duruigbo (2008, p. 61).
119 Stiglitz (2006, p. 197); Saul (2005, p. 82).
120 Fort and Schipani (2002, p. 399) although they accept that business will more
often be interested in promoting peace. See in this regard Norms with Commentary
(2003) at paras 3–4, the Norms are discussed below text next to fn. 378 ff.
121 Tavis (2002, p. 534). See Kaldor (1999, pp. 6–7) such as Shell in Nigeria. See
also in this regard the proposals Special Representative Report (2008), fn.100, at paras
47–9.
122 Oshionebo (2007, p. 2); McLoughlin (2007) at fn. 1. See Saul (2005, p. 189)
on the role of corporations in the Iraq wars.
123 Branson (2002b, pp. 132–3); Branson (2001b, p. 357).
neutral but that most still identify closely with powerful Western countries:
that they contribute to globalization as a new form of cultural imperialism.124
Branson has observed that ‘[n]ational differences persist – are “hard wired into
core corporate structures” and “embody distinctive and durable ideologies or,
as some analysts now prefer to call them, belief-systems”.’125 Many MNCs
have retained very specific, often American or European, nationalities despite
globalization and despite being active in many countries.126 Although global
corporations have spread their production processes headquarters have
become more concentrated in the West.127
Too much must not be made of these criticisms although there is at least a
grain of truth in each of them. Again the constraining effect of market and other
non-economic forces of globalization should not be underestimated. Some
claims are exaggerated because the claims of globalization are themselves
overblown128 and because faceless MNCs are convenient scapegoats for the
sins of globalization.129 It is also dangerous to blame all the ills of globaliza-
tion on corporations because, in many ways, they are merely its instruments.130
However, as with globalization, the idea that MNCs are sufficiently inhib-
ited by market forces alone and will be an unmitigated force for good is unre-
alistic and tainted by blind ideology. Market failures occur often enough in
developed countries and very frequently in developing countries. MNCs are
frequently able to externalize the cost of their activities. They have been
described as psychopathic externalizing machines.131 Furthermore, markets
cannot sufficiently protect the interests and values of societies against abuses
by MNCs.132 The instances of misbehaviour are sufficiently widespread to
indicate that it is systemic and that there is a need for corrective measures.133
124 Branson (2001b, pp. 341–3, 358).

125 Branson (2001b, p. 341) quoting Doremus (1998, p. 15) and see also the
further quote p. 342.
126 Saul (2005, pp. 83, 178).
127 Saul (2005, p. 125). Although Orts (1995, p. 253) is correct in observing that
some MNCs are becoming stateless, in which case the ‘neo-mercantilist’ argument that
corporations are instruments of their incorporating states becomes problematic.
128 Doremus (1998); Branson (2002b).
129 Fort and Schipani (2002, p. 392).
130 Stiglitz (2002, pp. 188–9) who argues that MNCs for the same reason cannot
be blamed for increased materialism.
131 Stiglitz (2006, pp. 190, 192–5). See Bakan (2004), especially pp. 56–7 for a stim-
ulating albeit exaggerated description of corporations as psychopaths. See the broader
explanation of schizophrenia in conservative thinking: Byers (2004, pp. 921, 940 ff.).
132 See the analysis of the extent of managerial discretion, Tavis (2002, pp.
527–9), although the aim of this analysis is to determine to what extent corporations
can promote social responsibility despite the market.
133 Stiglitz (2006, p. 189).
4 CORPORATE LAW THEORY

Globalization creates difficulties and opportunities for corporate law. To deter-
mine how the law should respond, there is a need to foray into corporate law
theory. Theory must help to answer two questions: (1) for whose benefit
should MNCs exist? (2) what role should regulation of MNCs play?134 The
recent failures in the global economy and the role of MNCs in it mean that the
timeless questions regarding the nature of corporations have again become
timely.135
The corporate theory that evaluates the relationship between corporations,
participants in activities of corporations and states needs to be analysed.
Traditional jurisprudential analysis of corporations and corporate law had
become a stale subject. It did not contribute much to attempts at answering the
vexed questions of contemporary corporate law.136 Nevertheless, economists
have invigorated corporate law theory in recent times.137 This has led to the
establishment of a new ontology of corporations. The economic theory of the
firm, or so-called contract theory, has exerted enormous influence on the
current understanding of corporations.
According to the economist Ronald Coase the function of a firm, such as a
corporation, is to save transaction costs.138 It receives funds and uses them to
purchase inputs and employ workers. The transaction costs of doing so by
concluding specific contracts that precisely define performance, would be
exorbitant. Accordingly, authority replaces contracts inside the corporation.
Managers wield this authority to allocate resources and costs. They do delib-
erately what the market would do spontaneously, in order to save transaction
costs. Relationships are internalized in the firm in order to save transaction
costs. Hence, the question whether a relationship is internalized or not depends
on transaction costs in comparison to the cost of exercising authority through
management.139
134 Backer (2006, p. 310); there is also a third question: where must regulation of
global corporations take place? But this question has to be answered separately.
135 This line is borrowed from Testy (2002, p. 1228).
136 Bratton (1989a, pp. 1471, 1491 and 1508 ff.) and Bratton (2001, p. 737)
where it is referred to as Dewey’s indeterminacy argument after an article by Dewey
(1926, pp. 655, 667–78). Bratton ultimately also believes this is true of the economic
approach. See on these theories Bratton (1989a, pp. 1482 ff.); Millon (1990, p. 201);
Tsuk (2003, pp. 1861, 1871 ff.). See especially the colourful description of Buxbaum
(1993, pp. 867, 868).
137 Easterbrook and Fischel (1991); Ulen (1993, p. 301). Although this approach
is not unrelated to previous perspectives on corporations: Millon (1990, p. 229).
138 Coase (1937, p. 386); Cheung (1983, p. 1); Coase (1988, p. 33).
139 Bratton (1989a, p. 1477) calls this the weaker version because it does not
Especially in the United States, Coase’s ideas were expanded to focus on the
separation of shareholders and managers, which had become the dominant
feature of large US corporations.140 Authors then started to describe a corpora-
tion as a nexus of contracts (contract in the economic rather than the legal
sense).141 Management as the agents (again in the economic rather than legal
sense) of shareholders have an incentive to shirk or to refrain from acting in the
interest of shareholders. There is a dissonance between the interests of share-
holders and managers. Managers will not maximize value for shareholders as it
is not in their own interest to do so. Monitoring systems are established to allow
the shareholders to supervise the extent to which managers promote their inter-
ests.142 Further, efforts will be made to bring the interests of managers into line
with those of shareholders, through bonding. Managers are bonded to corpora-
tions by the structuring of their compensation and by making them sharehold-
ers of the corporation. Monitoring and bonding are not perfect in achieving
maximization of shareholders’ wealth. The cost of monitoring and bonding is
evaluated and shareholders and management put mechanisms in place that
balance these costs with the risks of managerial opportunism.143
Hence, standard contract theory results in several fundamental conclusions.
First, peremptory regulation of corporations is inefficient and inappropriate.
The legal rules that constitute corporate law are intended merely to save trans-
actions costs. Shareholders and management should be allowed to depart from
them in situations where they are inefficient. Only a small number of rules that
are not contractible should be peremptory.144
Secondly, contract theory has contributed substantially to the justification
of the ‘hegemony of shareholder primacy’.145 In the words of the economist
Milton Friedman, ‘[t]he social responsibility of business is to increase its prof-
its’.146 Shareholders should be the ultimate beneficiaries of the actions of
regard the market as operating internally. See also Bratton (1989b, pp. 407, 416–17)
but also p. 421 and the description of the approach of the institutional economists, espe-
cially Williamson. See the criticism of Alchian and Demsetz (1972, pp. 777, 794). See
also on the property rights theory Blair and Stout (1999, pp. 247, 259–61).
140 Millon (1990, p. 230).
141 Bratton (1989a) at fn. 28; Ulen (1993, pp. 319–21) on the origin of the term.
In institutional economics greater emphasis is placed on structure and the role of the
contract itself becomes very limited, see Williamson (1981, p. 1537) and Williamson
(1984, p. 1197). See Bratton (1989b, pp. 446 ff.) on the meaning of contract in this
context.
142 Meese (2002, pp. 1629–31).
143 Bratton (1989a, p. 1478); Bratton (1989b, pp. 417–19).
144 Millon (1990, pp. 230–31); Ulen (1993, pp. 322–3).
145 Testy (2002, pp. 1230–32).
146 New York Times 13 September 1970 (Magazine), p. 32. Friedman’s more
scholarly treatment of his arguments was laid out in Friedman (1962).
management. Corporate law should be antipathetic to all but the suppliers of

capital.147 This approach does not mean that the interests of society are irrele-
vant to corporate law. Two of its most illustrious proponents state that:
All thoughtful people believe that corporate enterprise should be organized and
operated to serve the interests of society as a whole, and that the interests of share-
holders deserve no greater weight in this social calculus than do the interests of any
other members of society. The point is simply that now, as a consequence of both
logic and experience, there is convergence on a consensus that the best means to this
end (that is, the pursuit of aggregate social welfare) is to make corporate managers
strongly accountable to shareholder interests and, at least in direct terms, only to
those interests.148
Only if shareholders bear the residual risk of the success of the corporation
will they have the necessary incentive to ensure that corporations are managed
efficiently.149 Although a corporation is regarded as a nexus of a wide range
of contracts and not just the contracts between shareholders and manager, the
contracting problems in other relationships are generally regarded as easier to
resolve.150 Regulation of these relationships should be external to corporate
law and should take place in labour law, consumer law and human rights law:
‘[m]uch of the economic analysis of corporations … strips these other
contracts of normative importance for corporate law’.151
The contractarian view apparently has considerable academic support in
the United States and, to a lesser extent, even outside of it.152 It has been
147 See in this respect also the influential article of Alchian and Demsetz (1972),
see the discussion below, text next to fn. 201. See the description of Hodes (1983, pp.
468, 487) where the approach of Friedman is described as fundamentalist because it is
based on the notion that a corporation can only have an economic function.
148 Hansmann and Kraakman (2001, pp. 439, 441). See also the evaluation from
a different perspective Greenfield (2002, pp. 605–6).
149 Meese (2002, p. 1631) ‘this “principal–agent” account of the public corpora-
tion, in turn, implies a “shareholder primacy norm”’. See Testy (2002, pp. 1237–8) on
the criticism that the definition of ‘stakeholder’ in terms of the stakeholder approach,
discussed below, text next to fn. 159 ff., is too vague. See Millon (1990, p. 220) on the
influence of Friedman. See generally on the contribution of Berle and Means, Bratton
(2001). See Blair and Stout (1999, pp. 258–65) who call this the ‘grand-design-
principal–agent model’.
150 Cf. Licht (2004, pp. 649, 708–12).
151 Whincop (2001, pp. 168–9), see also the analysis below, text next to fn. 214
ff. See Williamson (1984, p. 1197) who gives an economic but very sophisticated
picture of the role of different contracts in the corporation.
152 Although the position must not be over-simplified: Branson (2004, pp.
918–19).
described in the United States as a bastion of economic conventionalism.153 In

practice, legislation and court judgments can sometimes be explained with
reference to it. The shareholders are regarded as residual claimants; they are
perceived as the group that have the ultimate interest in the corporation,154 and
are believed to have ultimate control over the corporation.155 Furthermore,
contract theory provides the theoretical underpinning in corporate law for
justifying the light regulation of MNCs under globalization.156
The antithesis of contract theory, for simplicity, can be called corporate
social responsibility (CSR).157 There are many hues of CSR and this brief
analysis will necessarily be a gross oversimplification.158 Indeed the ideas that
are grouped together here as CSR have variously been referred to as CSR,159
the stakeholder approach,160 progressive corporate law161 and communitarian
corporate law.162 Corporate law and corporations are, according to this
approach, not merely aimed at promoting the interests of shareholders but are
concerned with a much wider range of stakeholders. Some CSR scholars feel
that corporate social responsibility should be promoted extra-judicially and
that it can be legitimized on the basis of market forces. Conversely, others are
strongly anti-capitalist and anti-market. However, most strands of CSR recog-
153 See the influential Hansmann and Kraakman (2001), discussed below, text
next to fn. 266 ff. Greenfield (2002, p. 583) accepts that it is the conventional position
in the United States.
154 Williams and Conley (2005, pp. 493–5) state that this approach is understood
to ‘valorize shareholder value’. See Dodge v Ford Motor Co 170 NW 668, 684 (Mich
1919); Katz v Oak Industries Inc 508 A2d 873, 879 (Del Ch 1989).
155 But see the criticism of Bainbridge (2002, p. 45).
156 Backer (2006, pp. 308–9) ‘globalization also embraces the structural status
quo’. See the arguments listed by Mensch (2006, pp. 243, 248).
157 Testy (2002, p. 1232) calls these approaches ‘counter hegemonic’ but that
perhaps is only true for the United States. In many other countries they receive much
broader acceptance.
158 Testy (2002, pp. 1246–7); Backer (2006, pp. 300–8); Backer (2008a, pp. 591,
607, 609–12). See the list of models set out in Hansmann and Kraakman (2001, pp. 443
ff.).
159 Or in the US ‘new corporate social responsibility’ to distinguish it from the
variant that applied in the 1970s, see Testy (2002, p. 1229); Branson (2001a, pp. 605,
639–46). Testy above p. 1238 also notes that this is the most aggressive form of
progressive corporate law. It is not clear from the manner in which the term is used by
others that this is always true.
160 Licht (2004, pp. 722 ff.); Testy (2002, pp. 1237–8) mentions that this term
arose in the context of the anti-takeover mechanisms in the US in the 1980s.
161 Mitchell (1995); Testy (2004, pp. 91 ff.); Licht (2004, pp. 713–14). See for the
origin of the term Tsuk (2003, p. 1863).
162 Testy (2002, pp. 1228–9) and especially pp. 1241 ff. See Branson (2002a, pp.
1217–18).
nize the benefits of market capitalism as well as the need for proper regulation
of its institutions to promote their proper functioning. They are not anti-corpo-
rate but acknowledge the dangers of the powers of large corporations, espe-
cially MNCs.163 Earlier forms of CSR required powerful constraints on the
activities of corporations, but current versions are more cautious. They are
more closely focused on corporate theory and the internal structuring of corpo-
rations.164 ‘Instead of regulating the uses to which the tool is put, these
commentators took the redesign of the tool itself’.165 Many proponents of
CSR emphasize sustainability or responsibility reporting by corporations
(sometimes as a singular aspect of CSR but more often as one of a range of
aspects).166
CSR has itself been questioned, even by those who share its broad ideals.
It has sometimes been slated as window-dressing for large corporations, or as
a form of corporate commodification.167 It also may be suggested that there is
an inherent conflict between the interests of shareholders, managers and other
stakeholders. It will then follow that CSR will not sufficiently restrain the
forces that lead management to act in their own interest or in the short-term
interests of shareholders where they conflict with the interests of other stake-
holders.168 The emphasis which some proponents of CSR have placed on
reporting and disclosures also has been subjected to criticism because it does
not establish clear principles according to which the conduct of managers can
be measured.169 It presupposes that stakeholders in the corporation will have
163 Testy (2004, pp. 93, 104).

164 Below, text next to fn. 174 ff.
165 See Mitchell (1995, p. xiv) referred to in Testy (2002, p. 1228); Testy (2004,
pp. 92, 103).
166 Williams and Conley (2005, p. 503): greater promotion of disclosure of non-
financial information is merely one aspect of the greater promotion of the interests of
stakeholders. See the argument of Testy (2002, pp. 1235–6) who refers to this approach
as corporate social accountability. See on the approach in the United States, Branson
(2002a, pp. 1218–20). See below, fn. 169, on sustainability reporting.
167 Testy (2002, p. 1239) on commodification; Williams and Conley (2005, p.
501) who caution that the CSR debate may be dominated by corporations who merely
use it to ‘provide safe venues for the disaffected to let off steam’. See also Bakan
(2004) especially pp. 18–20, 26, 28 ff. and 109 where he states that the term is an
oxymoron.
168 Williams and Conley (2005, pp. 501–2).
169 See on the monitoring and disclosure movement: Backer (2006, p. 304) and
Backer (2008a) especially at p. 600. See also generally on social responsibility report-
ing the Global Reporting Initiative www.globalreporting.org, accessed 7 December
2008, which provides for a sustainability reporting framework of which the most
important element is the Sustainability Reporting Guidelines; Branson (2002a, pp.
1218–20); Backer (2008a, p. 642) on this and other initiatives. See also Blair et al.
(2008, p. 325) on providing assurance services in this context.
sufficient incentives to glean disclosed information and will be able to take

steps to ensure that corporations or their managers do not harm them.170
Nevertheless, the major conflict remains between CSR and contract theory.
Although some more recent versions of stakeholder theory are more structural
and take contractarians on, on their own turf,171 the two approaches remain
incommensurable.172 They are self-contained and there are few exchanges
between disciples of opposing views. The differences between these points of
departure have resulted in a stalemate that has now persisted in corporate law
theory since the debate between Adolf Berle and E. Merrick Dodd in the
United States in the 1930s.173
Two aspects can be highlighted. Most strands of CSR are communitarian in
their world-view.174 They recognize the establishment of group identities.
Humans identify with, respond to and rally around corporations as social insti-
tutions.175 CSR borrows from aggregate theory. It emphasizes that corpora-
tions aggregate a large number of persons.176 They exist for the benefit of a
range of stakeholders from employees through suppliers to consumers and the
environment.177 The emphasis mostly is on the institutional nature of corpo-
rations.178 Contract theory ignores these institutional characteristics of corpo-
rations. It implicates a completely different conception of the corporation. The
economic approach to corporations is materialistic and individualistic.179 It
deconstructs the corporation and does not regard it as an entity in any mean-
ingful sense.180
170 Testy (2002, pp. 1235–6).

171 Testy (2002, p. 1230). See the analysis of Tavis (2002, pp. 531–2).
172 Licht (2004) who explains this with reference to behavioural economics.
Dickerson (2004, p. 534) says there is a discontinuity between these visions of corporations.
173 Berle and Means (1932); Berle (1931, p. 1049); Berle (1932, p. 1365); Dodd
(1932, p. 1145). Berle later conceded the argument in Berle (1954, p. 169). For inter-
esting summaries of the Berle and Dodd debate, see: Tsuk (2003, pp. 1880–1900);
Backer (2006, p. 295); Licht (2004) especially at pp. 690 ff.; Bratton (2001).
174 Whincop (2001, pp. 213–14). Byers (2004, pp. 975–6) distinguishes the
corporate governance and progressive movements as well as the communitarian theory
of responsibility.
175 See Nesteruk (2002, pp. 437, 443–4) juxtaposing Fischel (1982a, pp. 1259,
1273) and Millon (1993, pp. 1373, 1388), Solomon (1994, pp. 271, 281), see also
Nesteruk above pp. 449–51.
176 Millon (1990, pp. 226–7).
177 Testy (2004, p. 91).
178 Even in institutional economics the institutional aspect of corporations, in this
sense, is underplayed, see above, fn. 139.
179 See Bratton (1989b, pp. 439–41) for the impact of liberal individualism.
180 Bratton (1989a, pp. 1498–9); Bratton (1989b, pp. 418–20, 423, 428–9).
However, Bratton in his last mentioned article shows that this idea should not be exag-
gerated, there remains a ‘nexus’, see pp. 429–30.
Contractarian theory borrows a central concept from classical liberalism by charac-

terizing the internal workings of corporate life from an atomistic perspective, which
reposes trust and belief in the power of individuals to steer their economic destinies.
While this permits the theorists to indulge a romanticized view of corporate reality,
it also drops corporate accountability out of the equation, because a ‘corporation’
has no existence outside of individuals.181
The CSR approach emphasizes the power of corporations and their ability
to exploit it.182 It looks directly at the impact of corporations on society.183
Markets and contracts often will fail to check the powers of corporations in
general and MNCs in particular. Emphasis on greed and profits in the market
will not create sustainable markets.184 Group identities ensure proper co-oper-
ation within the corporation. However, they will also mean that corporations
create a them-and-us mentality. This impacts on the manner in which those
inside the corporation perceive those who are affected by its activities but are
outside it. The organization of business accordingly is not a mere private
matter.185 Corporations have to be subjected to regulation by institutions that
are democratically accountable.186 Conversely, contract theory eschews the
existence of hierarchy and the abuse of power by management.187 It makes use
of transaction economics to present a highly technical analysis of one aspect
of corporate structure.188 It refashions the firm in bold outlines ‘to anchor its
location on the private side of the public private debate’.189 It makes use of the
assumptions of neo-classical micro-economics and is underscored by the
181 Byers (2004, p. 978).

182 Testy (2002, p. 1228); Fort and Schipani (2002, pp. 431–2).
183 Dickerson (2004, p. 534).
184 Fort and Schipani (2002, pp. 428, 430).
185 Millon (1990, p. 226); Bratton (1989b, pp. 437–9); Testy (2004, p. 91) and the
idea that corporations can be viewed as quasi-public entities.
186 See Tavis (2002, pp. 511–13) on the legitimization of international gover-
nance networks, discussed below text next to fn. 352 ff. This point of departure is
sometimes criticized by realists and law and economics scholars, for being an expres-
sion of the old concession theory. Hansmann and Kraakman (2001) at fn. 5. According
to this theory corporations exist merely by the grace of states that allow for their incor-
poration. The rejection of the concession theory can be supported and becomes appar-
ent from the existence of global MNCs, which frequently pay homage to no state.
Nevertheless, there is no necessary link between this theory and CSR, see Bratton
(1989a, p. 1497) and especially Bratton (1989b, pp. 433 ff.).
187 Bratton (1989a, pp. 1478, 1480, 1499–1500); Bratton (1989b, pp. 415–17,
420). This is true also of institutionalists or property rights theorists, but to a lesser
extent, see Hart and Moore (1990, pp. 1119, 1121). See the argument of Blair and Stout
(1999, pp. 264–5).
188 Dickerson (2004, pp. 534, 538–42).
189 Bratton (1989b, p. 442).
belief that market competition will place adequate restraints on the activities
of corporations.190 It does not recognize the sociological and political signifi-
cance of corporations.191
It is very difficult to express a reasoned preference for one approach over
the other. A choice will necessarily be pre-determined by political orientation.
Contract theory unveils several truths about the nature of corporations and
their function in market-oriented societies. When neo-classical contract theory
meets neo-liberal globalization, it confirms and justifies the optimism of the
advocates of economic globalization. It illustrates the difficulty with state
regulation because of the political processes by which these decisions are
made.192 However, the criticisms of globalization and MNCs illustrate that
there are difficulties with conventional contract theory. The problems with
contract theory are magnified in the global context. Accordingly, the basic
point of departure in this chapter will be that there is a need for comprehen-
sive legal control of corporations in the interest of a wide range of stakehold-
ers, but that it must be done with due respect for markets and the interests of
shareholders. Even in the United States, where contract theory has a strong
hold over legal regulation, there is peremptory regulation of corporate gover-
nance, especially through the Federal Sarbanes-Oxley Act, albeit that it is
mostly aimed at promoting and protecting investment.193
This conclusion is bolstered by more recent works that have questioned
conventional contract theory with reference to its internal logic.194
Behavioural economics is changing our perception of law and economics and
it has fundamental implications for contract theory.195 First, behavioural law
and economics scholars show that individuals do not merely act on the basis
of economic considerations but that they are also motivated by non-economic
beliefs and values. This weakens the normative justification of the efficiency-
focused contractarian fetish with shareholder primacy.196 Secondly, the anti-
regulatory conclusions of contract theory are grounded in the assumptions that
actors attempt to maximize profit and that they are able to determine their best
190 Bratton (1989b, pp. 417–19); Dickerson (2004, p. 538).

191 Although contract theory is by no means apolitical, see Bratton (1989b, pp.
428–9, 432).
192 See above, fn. 75, on public choice theory.
193 Pub L No. 107–204, 116 Stat 745 at 403 (2002), see for example Hemingway
(2005, pp. 225, 234–6).
194 Testy (2002, p. 1235). See also Backer (2008a, pp. 606–7) who also makes
use of economics, albeit ideas outside the mainstream, in order to justify corporate
social responsibility.
195 Although behavioural economics can be used to argue that the shareholder
primacy model should be maintained if certain conditions prevail, see Licht (2004).
196 Greenfield (2002, pp. 613 ff.) on the link between efficiency and fairness.
interests, but psychologists have shown that human beings are much more
complex and that these premises are gross simplifications. Parties who
contribute and participate in the activities of corporations are prone to cogni-
tive biases and they do not merely think of utilitarian efficiency. Like those
who resist the materialism of globalization, they also include non-economic
values in their considerations. The anti-regulatory arguments of contractarians
accordingly must be approached with caution. Individuals are not always able
to establish their best interests and the law may need to intervene to ensure that
the interests of stakeholders of corporations are properly protected and indeed
may even be required to achieve efficiency. Corporate law should remain a
significant source of regulation of relationships inside and around corpora-
tions.197
Furthermore, Blair and Stout accept the postulate that a corporation is a
nexus of contracts and they reject the communitarian notion of a corpora-
tion.198 Yet they are critical of the emphasis which conventional contractarians
place on the agency relationship between managers and shareholders and the
commonly expressed notion that shareholders are the indirect owners of the
corporation, who have residual claims to the business and assets of the corpo-
ration.199 Blair and Stout contend that corporations are aimed at resolving the
problem of team production. Where inputs are produced by members of a team
and it is impossible to discern the input of each team member in the indivisi-
ble result,200 it will be difficult to ensure efficient production by the team and
determine appropriate remuneration for the members of the team.
Conventional contract theory is to the effect that team members will shirk, that
monitoring will be necessary in these situations and that shareholders as resid-
ual right-holders will, through management and the board, be motivated to
undertake supervision.201 Nevertheless, Blair and Stout point out that if inputs
could be established by monitoring, specific contracts could be concluded with
team members.
The really troubling situations are those where it will be impossible to
determine inputs accurately despite careful scrutiny. Blair and Stout stress that
team production often will be effective only if members invest in the acquisi-
tion of specific skills but that team members will make these investments only
197 Greenfield (2002). See also, on the influence of rationality on views of corpo-
rate law, Fanto (2002, pp. 1041, 1053).
198 Blair and Stout (1999, pp. 253, 286) especially fn. 83.
199 Blair and Stout (1999, pp. 290–93).
200 Comparable with the case where ingredients become indistinguishable in the
baking of a cake, see Testy (2002, pp. 1233).
201 Alchian and Demsetz (1972), see the valid criticism of Blair and Stout (1999,
pp. 265–9) because the authors accepted that employees were undifferentiated.
if they know that they will receive the benefits. In these situations the problem
will be exacerbated if residual rights are given to another participant in the
corporation. If rewards for performance of team members are determined ex
ante, they will shirk. If it is done ex post, members will be loath to make the
specific investments required to allow them to contribute to the team, for fear
that those who have residual rights will engage in rent seeking.
The authors conclude that the directors should be given the final say as to
who should be rewarded for production and how this should be done, in order
to resolve the problem of opportunism in team production. Directors then
become the ‘mediating hierarchs’ who decide how the collective residual
produced by the firm should be divided.202 Only if the team members are
rewarded by the board, as a mediating hierarch, would teams be rewarded
properly while team members would continue to invest sufficiently in firm-
specific skills.203
Despite their explicit rejection of the CSR approach, the Blair and Stout
analysis supports the central tenet that runs through much of CSR: that share-
holder supremacy is untenable. Corporate law cannot be fixated on the inter-
ests of shareholders. Others also make important investments in the
corporation, like shareholders their contracts are frequently incomplete and
they must receive proper returns on their contributions to ensure that corpora-
tions operate properly. Shareholders are unlikely to exercise their power of
supervision effectively. They are as likely to act opportunistically and promote
their own interests at the expense of the other contributors to the corporation,
such as its managers.204 Shareholders who are mobile often focus on the short-
term benefits that are to be derived from corporations. There is no final arbiter
who can serve as the last custodian of efficiency within the corporation. The
installation of shareholders into this position can be justified only on the basis
of other pre-existing and unexpressed preferences. The shareholder primacy
model is based on an a priori ideological position and does not flow neces-
sarily from the basic premises of contract theory.
Blair and Stout’s views appear incomplete and not entirely coherent. First,
even if their approach may be tenable in explaining where corporate law
should go, their attempt to explain current corporate law phenomena such as
derivative claims for shareholders, fiduciary duties and voting rights for share-
202 Blair and Stout (1999, pp. 276, 282) on the activities ascribed to the board, it
goes beyond mediation. See Greenfield (2002, pp. 627–8).
203 See generally Blair and Stout (1999) especially at pp. 265–76 and the
summary Meese (2002, pp. 1637–45).
204 See Meese (2002, p. 1669) who suggests that this problem will be addressed
by giving the right to the residual to the ultimate monitor; such an approach does not
appear to be correct.
holders in terms of the team production theory do not appear to be persua-

sive.205 Secondly, the traditional team production approach on which Blair and
Stout built has been criticized in the nexus-of-contract literature.206 It is not
obvious that team production problems are so pervasive that all the basic
features of the corporate law of public corporations should be explained in
terms of it. Thirdly, the Blair and Stout model has the veneer of an economic
approach but differs from economic approaches to the firm in various
respects.207 It is particularly concerned with the ‘rhetoric’ and ‘corporate
culture’ that lead to an obsession with shareholder primacy.208 Fourthly, Blair
and Stout do not indicate how the board will be able to settle disputes regard-
ing rewards and why the board will do this properly.209 Their approach also
undermines the benefits that derive from entrusting the corporation to special-
ized managers who are able to manage it within wide parameters.210 Fifthly,
Blair and Stout believe their approach to apply only to public corporations.
However, it is difficult to see how a logical distinction can be drawn between
private and public corporations for this purpose.211 Finally, Blair and Stout’s
approach may not be as different from the traditional contractarian view as it
may appear at first glance. If directors have to balance the interests of differ-
ent stakeholders it may mean that very little will change. Investors often have
the ability to walk away and this may mean that they will still be able to hold
205 Blair and Stout (1999, pp. 290–319). To illustrate this, the arguments for only
granting shareholders voting rights appear particularly thin. They contend that share-
holders have voting rights as a representative because they are relatively homogeneous
and that they will be less likely to exhibit pathologies and indulge in rent seeking, while
their aim of increasing the value of their stock will benefit all. Further they submit that
shareholders may be more vulnerable than other groups. These arguments all suggest
that the shareholder primacy model is preferable. Oddly they do not refer to
constituency statutes in this context. See the comments of Meese (2002, pp.
1673–1700).
206 Bratton (1989a) at fn. 37.
207 See the arguments regarding directors in this section below and the observa-
tion by Blair and Stout (1999, p. 323) that corporations are political.
208 Blair and Stout (1999, pp. 327–8).
209 Blair and Stout (1999, pp. 268–9, 292) describe Holmstrom’s (1982, p. 324)
model that provides for a budget breaker but it is not clear to what extent they import
it, at p. 274 they merely speak of the hierarch receiving a ‘nominal share of the team’s
output’, p. 283 where they emphasize that the board will have to act properly to ensure
continuation of employment, pp. 315–18 where Blair and Stout depart furthest from the
approach of traditional economics by relying on normative concepts; Meese (2002, pp.
1665–71). See also the analysis by Licht (2004, p. 715).
210 Meese (2002, pp. 1662–5) and especially p. 1667 on the incentive for
constituencies to monitor the hierarch and the effect of this.
211 See the approach of Blair and Stout (1999, pp. 275, 281, 322–3) and the crit-
icism by Meese (2002, pp. 1646–62).
directors to ransom. Other stakeholders, such as employees, may be in a much

weaker position. This will be particularly true where large investors continue
to indulge in short-termism.212
However, Blair and Stout’s approach may be helpful in recasting the legal
duties of directors.213 It may promote the serious concern for a broad range of
stakeholders simply by regarding the consideration and balancing of their inter-
ests as a core element of corporate governance. It may promote the achievement
of long-term sustainable profits. Furthermore, it exposes some of the flaws in
conventional contract theory’s description of the purpose of corporations.
The last anti-regulatory stand of contract theory could then be that, even if
it is conceded that the activities of corporations should be regulated by
peremptory norms for the benefit of a range of stakeholders, this should not be
the domain of corporate law.214 Fischel states that the solution to the problem
of corporate social responsibility, ‘assuming one exists’, is to be found in the
‘political process, not in changing the governance of public corporations’.215
Regulation of corporations should accordingly take place outside corporate
law. Corporate law sets up the basic governance structures for corporations but
other areas of law should do the work beyond this point.
Naturally, there are limits to what corporate law can do to create responsi-
ble corporations. Other forms of regulation are fundamental to the fair and
efficient operation of corporations. Hence, the call for a regulatory corporate
law is not the same as the call for an imperialistic one. However, this argument
cannot be taken too far. What, in the final instance, is the difference between
a law which provides for a minimum wage and one that requires management
to respect the rights of employees?216 The latter may dilute the rights owed to
shareholders on the basis that a duty on management to protect a broad range
of interests may cause them to lose focus and that the right would then become
‘essentially vacuous’.217 Nevertheless, it seems likely that, in a number of
situations, the establishment of corporate structures that promote social goals
may be more effective in achieving those goals than direct legislation aimed at
achieving the same end.
212 Testy (2004, pp. 102–3); Millon (2000, p. 1001); Testy (2002, pp. 1234–5).
See in the context of globalization, Blair and Stout (1999, pp. 324–8) which confirms
this fear.
213 Testy (2002, pp. 1234–5).
214 See also Branson (2000, pp. 1212–16); Gevurtz (2002, p. 645).
215 Fischel (1982a, pp. 1259, 1260); Hansmann and Kraakman (2001, p. 441);
Jensen (2001, pp. 297, 300–301). See the analysis of Fischel’s argument: Greenfield
(2002, pp. 593 ff.); Licht (2004, pp. 706–7).
216 Greenfield (2002, p. 594).
217 Hart (1993, pp. 299, 303); Licht (2004) especially at pp. 717–21. See the
problems with regarding corporate law as a regulatory tool, Greenfield (2002, p. 600).
Company law rules that promote social goals may not cause a greater loss
of focus than external rules. Even if a loss occurs, the gain to society may be
more than the cost. Fairness to stakeholders other than shareholders may be
crucial even where the aim of corporate law is economic efficiency. Fair and
equitable governance structures may reduce the cost of monitoring and
produce greater efficiency whereas legislation that promotes fairness outside
the governance structures may promote fairness without having the same
positive utilitarian consequences.218 Next, it will be obvious that, where
broader social goals are to be realized, structures must be created by corpo-
rate law in order to ensure that the values which we believe they should
embrace are internalized or embedded. We should not be surprised if we
have psychopathic corporations where the law does not establish structures
that are based on underlying values and are designed to promote the broader
values according to which corporations should operate.219 Finally, it cannot
be assumed that MNCs will necessarily operate in environments where the
regulation outside corporations will be adequate. In these situations internal
regulation becomes crucial.
Corporate law therefore has much to contribute in guiding the operations of
corporations in general and MNCs in particular.220 When it comes to MNCs,
contract theory looks out of place. In this sphere the main issue is not how
agency problems between shareholders and managers can be resolved, but
rather how managers can be prevented from over-performing in their relent-
less pursuit of profit and to the detriment of many who are affected by the
MNCs’ activities. Branson refers to this as horizontal corporate governance
and contrasts it with contractarian vertical governance.221
5 WHAT FORM SHOULD CORPORATE REGULATION

TAKE IN THE GLOBALIZED WORLD?
So, corporations and MNCs require regulation in order to protect stakeholders,
218 Greenfield (2002) especially at pp. 591 ff. and 640 ff.; Fort and Schipani
(2002, p. 430) argue, that in any event, well-run corporations already attempt to
promote a multiplicity of goals.
219 See Fort and Schipani (2002, p. 433) on the community that will be created
by a corporation if the promotion of peace is one of its goals and its impact on indi-
vidual behaviour.
220 See Fort and Schipani (2002, pp. 426–8) and the sophisticated argument
against what they call the ‘balance of power approach’.
221 Branson (2002b, p. 122), Branson (2001b, p. 361).
or those that are affected by MNC activities.222 Yet globalization means that
the establishment of regulation for MNCs is no simple matter.223
5.1 Regulation in National Law
Conventional corporate law theory focuses on the difficulties that arise

because of the separation of ownership and control. Interference by the state
in the affairs of corporations is at times questioned on a policy level but it is
assumed that states have the ability to regulate.224 In the era of globalization
no such assumption can be made.225 The regulation of the activities of MNCs
by national laws is difficult because of the fragmented system of national
corporate laws.226 Some have therefore declared the irrelevance of corporate
law and the identity of the incorporating state for MNCs.227
When governments develop national regulation they interact with MNCs in
a complex manner. When it comes to MNCs we are forced to abandon the
traditional notion that states make law and corporations merely react.228 ‘This
… suggests the possibility that the power to control the authoritative discourse
over corporate characteristics and responsibilities could be wrested from the
institutions controlling the national discourse of corporate law.’229 The diffi-
culties of nation states are structural and substantive. Structurally, the most
important restriction on a state is that its jurisdiction is territorially limited.
Substantively, nation states may make regulations that are regarded as inap-
propriate by those who are regulated or may find that they cannot be effec-
tively monitored and enforce regulations. Mobile MNCs are able to exploit the
gaps which globalization has opened up in the once seamless web of national
regulations.230 Large global corporations are mobile. Enforcement of norms
222 Byers (2004). See Tavis (2002, p. 538) ‘[g]lobal regulation is critically impor-
tant to mitigate market pressures’.
223 See Backer (2006, p. 310) and the list of complicating factors in the global-
ized discourse, they concern: broader constituencies, a broader range of institutions,
dispersed power.
224 See Backer (2008b, pp. 501–2). For an interesting account of the role of the
state and government in private law, see Michaels and Jansen (2006, pp. 846–60).
225 Branson (2001b, pp. 356, 359–60); Branson (2002b, pp. 130–32).
226 Pillay (2004, p. 499); Branson (2002b) especially at pp. 122, 126, 131–2;
Branson (2001b, p. 357); Backer (2007, p. 1747); Ratner (2001, pp. 535–6).
227 Branson (2002b, p. 132).
228 Danielsen (2005, p. 411), see especially pp. 411–12 on the different ways in
which corporations can shape regulatory regimes.
229 Backer (2006, p. 310); Backer (2008b, pp. 505–6).
230 Backer (2007, pp. 1745–9).
on MNCs is hampered by their ability to arbitrage between regulatory systems

and by the collective action problems of the states that attempt to regulate
them.231
Rogue states lack the will, or more charitably perhaps, the resources, to regulate
large multinationals operating within their borders. Other states deplore the situa-
tion, but persist in ‘free riding’ on the efforts of the states that do exhibit a will to
attempt regulation.232
States regard it as important to have headquarters of MNCs in their territo-

ries. They are important sources of tax revenue as well as top-end skilled
employment, economic power and prestige. The jurisdictions where MNCs
have their headquarters (home states)233 and whence they exert influence may
find it difficult to control their activities.234 If the activities of MNCs are
spread out widely it is relatively easy for them to move their headquarters. A
firm that is not given a free hand to maximize profits in a particular state is
soon taken over by another firm from another jurisdiction, which effectively
means that headquarters move. This is particularly true of MNCs that have
their seats in developing or relatively small developed countries such as South
Africa or Canada.235 South Africa has lost the headquarters of many corpora-
tions such as Old Mutual, Anglo-American and South African Breweries. It is
therefore one of a small number of countries that feel the pressures of global-
ization both as the developed home of MNCs and as the developing host of
these enterprises. But even strong developed states feel these pressures
intensely. Moreover, even when MNCs are unlikely to move because of their
national identities, they often perform harmful activities outside the territories
where they have their headquarters and home states are loath to regulate these
activities because they benefit from them with the MNCs. This problem is
exaggerated when, as is often the case, the headquarters are in developed
countries and harmful activities are performed in developing ones.
231 Branson (2002b, pp. 126, 134); Branson (2001b, pp. 356, 358–60); Stiglitz
(2006, pp. 188, 195); Pillay (2004, p. 490); Backer (2006, pp. 291 and 309) on their
ability to allocate risk; Backer (2008a, p. 619); Backer (2008b, pp. 503–4) calls this a
matter of territorial disjunction; Friedman (2000, pp. 134 ff.). Compare on the difficul-
ties of moving around: Bebchuk and Roe (1999, pp. 127, 162–3). Foreign investments
by MNCs are frequently made only if they are granted special privileges that may be
harmful or reduce the benefit of investment, Stiglitz (2002, pp. 71–2).
232 Branson (2002b, p. 136).
233 Sometimes also referred to as chartering states.
234 Branson (2002b, p. 136); Branson (2001b, pp. 356–7). See on policy difficul-
ties, Special Representative Report (2008), fn.100, at paras 39–41.
235 Special Representative Report (2008), fn.100, at par. 14. Although Branson
(2002b) at fn. 66 argues that few corporations have actually moved.
Similarly, the jurisdictions in which MNCs perform activities but where

they are not headquartered (host states) find it even more difficult to regulate
their activities locally.236 In developing countries MNCs are handled with kid
gloves because of the need for investment, employment and economic
progress.237 If MNCs are truly global, they will of course also function in
powerful developed host countries. These countries may be more competent to
regulate activities performed within their jurisdiction, but again MNCs are
able to arbitrage harmful activities to weaker jurisdictions. The resultant loss
of employment in the relatively highly regulated areas is not of the type
against which capitalist economies can regulate. The abuse of workers and the
environment in the jurisdictions where manufacturing activities then take
place go unpunished because of light or even non-existent regulation.238
Moreover, attempts by host states to enforce regulation extra-territorially,
especially in home states, are doomed to failure, especially if the host states
are developing countries and the home states are in the developed world.239
Too much should not be made of the inevitable impotence of states caused
by globalization.240 States make a choice to regulate activities or not, albeit
that those choices have economic and political consequences.241 Despite diffi-
culties, there are some national laws that can be used to address the extraterri-
torial activities of MNCs.242
International law may impose obligations on states (home states in particu-
lar) to enforce certain standards for corporate behaviour.243 Many countries
have enacted legislation to punish corporations that indulge in fraud, bribery
or corruption outside of their borders.244 The United States already enacted
236 Special Representative Report (2008), fn.100, at par. 14, paras 34–6; Branson
(2002b, p. 131); Branson (2001b, p. 356); Orts (1995, pp. 258–60); Duruigbo (2008, p.
60); Redmond (2003, p. 73); Ratner (2001, p. 462).
237 McLoughlin (2007, pp. 154–5).
238 Branson (2002b, pp. 133–4).
239 On the difficulties of regulating corporations in developing countries, see Fort
and Schipani (2002, p. 432).
240 See e.g. the argument of Michaels and Jansen (2006, pp. 868 ff.) but compare
p. 884.
241 See Saul (2005).
242 Backer (2007, p. 1744) especially the examples pp. 1744–5; Backer (2008b,
p. 502). See, on liability for international crimes committed by MNCs, Report of the
Special Representative of the Secretary-General on the Issue of Human Rights and
Transnational Corporations and other Business Enterprises (2007), A/HRC/4/035 (9
February 2007), paras 23–32 and see par. 34 on liability for other human rights viola-
tions. See below text next to fn. 433 ff., on the liability of corporations in international
law.
243 Below, text next to fn. 440 ff.
244 Stiglitz (2006, pp. 208–9).
such legislation, in the form of the Foreign Corrupt Practices Act, in 1977.245
Many other countries did not prohibit and sometimes even condoned foreign
bribery. In some host countries bribes by MNCs were even tax deductible.
However, the members of the OECD adopted the OECD Convention on
Combating Bribery of Foreign Officials in 1997.246 They have given effect to
the convention and the OECD is reviewing compliance.247 Furthermore, the
General Assembly of the United Nations adopted the Convention Against
Corruption on 21 October 2003. It has been ratified by many countries and it
determines explicitly that states must enact legislation to criminalize the brib-
ing of foreign public officials.248 The OECD’s efforts, in particular, have been
quite successful. Yet, these examples illustrate the limits of international oblig-
ations on states in this area. There are still very few if any international oblig-
ations that bind all states and these obligations address only specific problems
such as bribery. There have also been difficulties with the implementation of
these norms.249
Tort claims against United States (and even some other) MNCs have been
brought in terms of the United States Alien Tort Claims Act of 1789 (redis-
covered in 1980) for acts committed in other countries.250 The European Court
245 15 USC §§ 78dd-1, et seq.

246 DAFFE/IME/BR(97)20 available at www.oecd.org/dataoecd/4/18/38028044.
pdf, accessed 9 May 2009.
247 OECD Working Group on Bribery in International Business Transactions
Consultation Paper, Review of the OECD Instruments on Combating Bribery of
Foreign Public Officials in International Business Transactions Ten Years After
Adoption (January 2008), available at www.oecd.org/dataoecd/18/25/39882963.pdf,
248 Available at www.unodc.org/pdf/crime/convention_corruption/signing/
Convention-e.pdf, accessed 22 February 2009. Art. 16 and see art. 26 on criminal
liability of juristic persons as well as arts 34–5 on private law enforcement. See also on
regional legal instruments: Council of Europe, Criminal Law Convention on
Corruption, 1999; African Union, Convention on Preventing and Combating
Corruption and Related Offences, 2002, available at www.africa-union.org/
official_documents/Treaties_Conventions_Protocols/Convention on Combating
Corruption.pdf, and Organization of American States, Inter-American Convention
against Corruption, 1996, at www.oas.org.Juridico/english?treaties/b-58.html, accessed
22 February 2009. See also Ratner (2001, pp. 482–3).
249 Transparency International, Progress Report OECD Anti-Bribery Convention
(2008), at www.tranparency.org, accessed 22 February 2009, especially on the prob-
lems that arose in the UK with BAE in the Al Yamamah arms deal with Saudi Arabia,
which culminated in the House of Lords judgment of R (on the application of Corner
House Research) v Director of the Serious Fraud Office [2008] UKHL 60, and the
contrast with the prosecution of Siemens in Germany.
250 McLoughlin (2007, pp. 165–70); Mensch (2006, pp. 255–63); Redmond (2003,
pp. 80–83) especially p. 80 on the possibility of similar remedies in other countries.
of Justice has decided that national courts of Member States may not dismiss
actions against corporations domiciled in the states on the basis that there is a
more appropriate forum.251 In Australia, a court will only dismiss a claim on
this basis if the forum is ‘clearly inappropriate’.252 Admittedly, attempts to
make use of these kinds of mechanisms have met with innumerable obstacles
such as narrow scope, technical legal difficulties and the placing of obstruc-
tions in the way of proceedings by home states. Yet, they have achieved some
success.253 It may be argued that these measures are imperialistic, but as long
as they are brought before courts of the home states of defendant corporations,
there appears to be a sufficient basis for regulation.254
On a national level the most realistic solution would be to attack the prob-
lems of MNCs with a measure of practical humility and theoretical ambition.
We are unlikely to see wide-ranging grand attempts by states to establish
effective rules to regulate MNCs in national law in the near future. However,
states have a unique opportunity to assert and in some jurisdictions reassert
that corporations have social responsibilities, as the neo-liberal approach to
both globalization and the theory of corporations is in some difficulty. It could
perhaps be in some ways tenable to restrict regulation of corporations in
corporate law and to give full sway to the markets where those corporations
act in relatively homogeneous territories subject to strong legal and social
constraints. However, the argument has little traction when it is applied to
MNCs in heterogeneous and weak regulatory environments.
It is suggested that at least some of the constraints that national jurisdictions
experience in regulating MNCs can be overcome by conceptualizing the
corporation in the CSR likeness.255 It has been contended that there is no
evidence that European MNCs, incorporated in countries that focus on CSR,
are more socially responsible than American corporations that traditionally
follow the contractarian model.256 However, this may be true only because
corporate social responsibility models thus far have been inwardly focused. A
broader perspective on the responsibility of MNCs is required. It should be
asked whether it would suffice for MNCs, with the enormous power which
251 Owusu v Jackson [2005] ECR-I-1283.

252 Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 (HCA). See also on
extension of these remedies to other countries Pillay (2004, p. 512).
253 Pillay (2004, pp. 499 ff., 504 ff.); Stiglitz (2006, pp. 205–7); Special
Representative Report (2008), fn.100, at paras 88–91; Redmond (2003, pp. 85–6).
254 McLoughlin (2007, p. 155). See the argument of Redmond (2003, pp. 86–7).
255 Stiglitz (2006, pp. 198–9). See the argument of Greenfield (2002, pp.
609–10).
256 Branson (2004, p. 912) who submitted that at the time only 47 of the world’s
100 largest multinationals were American and that the others are domiciled in Germany
(11), the United Kingdom (9), France (8), the Netherlands (6) and Switzerland (5).
they wield, to comply with the law and the rules of the market place. Mayer
argues that the power of these corporations brings responsibility to contribute
positively to the welfare of the environments in which they operate.257 Indeed,
it will become apparent from the ensuing analysis that countries will have to
consider CSR seriously in order to comply with international human rights
obligations.258
This embracing of corporate social responsibility, as such, would only
establish a weak constraint on the activities of MNCs. It is weak because it
does not by itself create enforcement mechanisms outside the corporation. It
does not remove the difficulties of fragmented regulation by states that have
lost some of their power. Indeed, most CSR arguments thus far have been
based on the notion that states are able to regulate corporations. It still leaves
the focus on ex ante rather than ex post regulation of MNCs.259 However, it
will establish the legal structure that is conducive to the development of corpo-
rations that are socially responsive and can embed a culture of social respon-
sibility.
Additionally, the establishment of CSR as a basis for corporate law would
give rise to more specific rules that would constrain the activities of MNCs.
Indeed it is suggested that it would be difficult to establish a coherent basis for
regulating MNCs without a sound theoretical basis for developing such rules.
Finally, it may be suggested that any movement towards CSR will be of
little consequence without a general convergence on this basis, as firms will
merely arbitrage away from it. The issue of convergence will be taken up in
greater detail in the next section. However, it may be that corporations that are
set up to be socially responsible are already more reluctant, and it cannot be
asserted more strongly, to indulge in regulatory arbitrage to the lowest level of
regulation. Neo-liberals will argue that corporations in general and MNCs in
particular only react to monetary incentives. However, the earlier analysis of
corporate theory shows that this world-view may be over-simplistic. Law is
not conclusive in setting standards for behaviour but law matters in determin-
ing behaviour. These types of approaches may become all the more important
in a globalizing world where the voice of civil society as monitor of corporate
behaviour is growing as a further constraint on harmful corporate behav-
iour.260
257 Mayer (2002, pp. 588–9, 603–6, 631) with reference to Milton Friedman
above, fn. 146.
258 Below 6.2.1.
259 Byers (2004, pp. 923–4).
260 Below, 6.2.3 and 6.2.4.
5.2 Convergence of National Corporate Laws
A convergence of national corporate laws could contribute to a coherent regu-

latory system for MNCs.261 Converged rules would make arbitrage between
jurisdictions more difficult. It would allow only for arbitrage on the basis that
certain states do not enforce rules. Arbitrage on such a basis is much more
difficult to justify to stakeholders, both for states and MNCs. Furthermore,
convergence could eventually facilitate the creation of a singular international
corporate law for MNCs.262
Indeed, globalization has been central to the discourse about convergence
of corporate law.263 It has been contended that globalization itself will
promote the convergence of uniform corporate law norms that are necessary
for its own sustainability. MNCs and those who support them may work
towards convergence to save transaction costs.264 But globalization may also
benefit convergence in other ways. Up to now, and especially in the context of
globalization and corporate law, the prophets of convergence have frequently
been radical free-marketeers who have predicted that the American or some-
times the Anglo-American corporate governance model will triumph over
others.265 As this model is contractarian in nature, they prophesy a predestined
convergence on this basis because of its superior efficiency.
Hansmann and Kraakman believe the contract model, which they refer to
as the standard model, has its epicentre in the US and the UK266 and they
conclude:
Although there remained considerable room for variation in governance practices

and in the fine structure of corporate law throughout the twentieth century, the pres-
sures for further convergence are now rapidly growing. Chief among these pres-
sures is the recent dominance of a shareholder-centered ideology of corporate law
among the business, government, and legal elites in key commercial jurisdictions.
261 Cf. Branson (2001b, p. 327).

262 See below 5.3.
263 Pinto (2005) especially at pp. 486–7.
264 See Smits (2007, p. 1190) who argues that the importance of transaction costs
should not be overestimated.
265 See the discussion: Bratton and McCahery (1999, pp. 213, 236–43); Fanto
(2002, pp. 1052–53); Backer (2008b, p. 505); Bainbridge (2002). See also Gordon
(1999, p. 219), who further observes that convergence will be around issues important
to shareholders, and the emphasis he places on the role of cross-border mergers
although this issue could of course cut both ways. It may also promote convergence on
other bases depending on the structure and power relationships in the merger cf.
Branson (2001b, p. 341); see also the careful support of Gilson (1996, pp. 327, 331,
334) and Tavis (2002, pp. 526–7).
266 Hansmann and Kraakman (2001, p. 468).
There is no longer any serious competitor to the view that corporate law should
principally strive to increase long-term shareholder value. This emergent consensus
has already profoundly affected corporate governance practices throughout the
world. It is only a matter of time before its influence is felt in the reform of corpo-
rate law as well.267
Primarily, they argue that this convergence is brought about by economic

forces and the rise of public and diffuse shareholding. When it comes to the
former they distinguish three aspects: the force of logic, showing the share-
holder primacy model to be more efficient; the force of example, that is, actual
examples showing the model to be more efficient; and the force of financial
markets and product competition, which through greater internationalization
will bring about convergence on this model because of the competitive forces
at play. With regard to the second force, they stress that public shareholders
now are able to exert great influence to protect their interests.268
There is some South African evidence to support at least a weak version of
this convergence narrative. Even though the South African government, on the
face of it, promotes a left-of-centre form of social capitalism, its proposals for
a new Companies Act in core areas reflect the shareholder primacy model.269
A similar observation can be made about the corporate laws of some former
Soviet states that accepted American models of corporate law, even though
they are closely affiliated to continental Western European legal systems in
most respects.270
Yet, it is an over-simplification to suggest that legal systems that have been
more communitarian or CSR oriented in their outlook are coming around to
the American or Anglo-American model because this model is economically
superior.271
Buoyed by hubris and hyperbole, some scholars have projected the US model over the
face of the earth, upon scant evidence positing a ‘global’ convergence in corporate
governance. Two academic elites have even decreed the ‘end of history’ for corporate
law and further evolution of the governance model. One wonders what those two
scholars will do for an encore, positing as they have that perfection in corporate gover-
nance has been achieved. They may turn to writing fiction, but the case may be made
that with the ‘end of history,’ they have already made that transition.272

268 Hansmann and Kraakman (2001, pp. 449 ff.).
269 See especially the Companies Act 71 of 2008, s 76.
270 Hopt (2006, pp. 1161, 1168). See the comments of Branson (2001b, p. 336).
271 See Fanto (2002, p. 1049); Branson (2001b); Williams and Conley (2005, p. 495).
272 Branson (2002a, p. 1208). See also the criticism of this form of imperialism
in Branson (2001b) at especially pp. 325–6, 331 ff., 343–8 on embedded capitalism in
the US and other variants of capitalism in other countries.
The only predestined inevitability was that contractarians would meet up with
the prophets of neo-liberal economic globalization.
This approach is based on a simplistic view of shareholder primacy and
contract theory in the United States and the United Kingdom which ‘distorts
both the positive and normative aspects of the convergence debate’.273 There
is not always a clear dichotomy between Anglo-American corporate law and
other systems such as those in Japan and continental Europe. The most signif-
icant commonality in the UK and the US is that both share a particular brand
of shareholder capitalism which has culminated in a wide spread of share-
holding in listed corporations. In continental Europe and Japan shares are
often held in large blocks.274 Accordingly, there are important differences
between UK and continental corporate law and this makes it difficult to
harmonize European corporate law.275 However, corporate law in the United
Kingdom and the United States has always diverged in fundamental respects
and the United Kingdom may have moved to a position that is somewhere
between the US and the continental approach.276 The forces that favour CSR
are much more powerful in the UK than in the US.277 The UK government, to
some extent under the influence of the EU, has played a more important role
in promoting the social responsibility of corporations.278 Institutional
investors in general, and institutional investors with long-term perspectives in
particular, are much more prevalent in the UK than in the US.279 It is therefore
dangerous to speak of Anglo-American corporate law.
Furthermore, Hansmann and Kraakman’s justifications for predicting the
convergence on the shareholder primacy model are weak. It has been shown
earlier that there are serious theoretical concerns with this model. Moreover,
the current economic crisis which has emanated from the US and, to a lesser
273 Bainbridge (2002, p. 47).

274 Pinto (2005, p. 480); Williams and Conley (2005, p. 530), for wider similari-
ties see p. 536. In continental Europe major conflicts in companies are often between
majority and minority shareholders rather than between management and shareholders,
see Hopt (2006, pp. 1161, 1165–6). This system is often contrasted with the block-
holder systems where shareholding is concentrated: Bratton and McCahery (2001, p.
745); Tavis (2002, pp. 526–7).
275 Williams and Conley (2005, pp. 506–7, 530–33).
276 Williams and Conley (2005, pp. 495 ff.) and especially p. 499 on the ‘institu-
tional pressures’ that are changing UK corporate law and pp. 530–36; Licht (2004, p.
734). See below, text next to fn. 291, on s 172 of the UK Companies Act of 2006.
277 Although CSR in many respects originated in the US in the 1970s it has lost
momentum there, see Branson (2002a).
278 Millon (1990, pp. 226–9); Williams and Conley (2005, pp. 530–36).
279 Williams and Conley (2005, pp. 536 ff.) bolstered by a strong NGO sector
centred on London, see pp. 547–50. That is not to say that no CSR activity takes place
in the US but just that it is much weaker than in the UK, see pp. 545–7.
extent, the UK has exposed several flaws in Anglo-American capitalism.280

Even Hansmann and Kraakman admit that there are several reasons why
market forces will not deliver us all to the shareholder primacy model.281
Furthermore, it is difficult to see how the rise of the public shareholder argu-
ment can serve as a justification for the shareholder primacy model. The argu-
ment that shareholders are now more powerful could be an explanation for the
rise of this model but it is not a justification for it. The authors seem to justify
shareholder primacy on the basis that public shareholding will ensure that
shareholder primacy will benefit all.282 However, even if shareholding is
widespread in some countries there are still few, if any, countries where the
spread will be wide enough to ensure equity and clearly many where it will not
be. Moreover, this argument cannot be used to justify the shareholder primacy
model in the case of MNCs. The link between shareholders and other stake-
holders is often very weak for these corporations and they operate in countries
which, by the authors’ own admission, will not have wide spreads of public
shareholding.
More than anything else, the acceptance of the shareholder primacy model
in the new Companies Act in South Africa and in other states may reflect the
ability of American advisors to promote and market their approach to tech-
nocrats: what Fanto has called the ‘relentless promotion and exportation’ of
the American model.283 If globalization does not mean Americanization, a
broader exchange of ideas needs to take place.284 The convergence process has
to be more thoughtful. Corporate law is not embedded in culture in the same
manner as, say, family law or the law of succession, but it does not exist in
isolation from national institutions and cultures.285
Furthermore, convergence on the basis of the shareholder model is coun-
teracted by the global CSR movement.286 The CSR movement is itself chip-
ping away at the differences in national corporate laws.287 It is likely that the
current dynamics in globalization and corporate theory debates will
strengthen this movement. However, it is difficult to predict the future of
280 See the criticisms by Branson (2001b, p. 334). See already the earlier views
of Fanto (2002, p. 1054).
281 Hansmann and Kraakman (2001, pp. 450–51).
283 Fanto (2002, p. 1048).
284 See on Americanization, globalization and the impact of the EU Michaels and
Jansen (2006, pp. 867–8); Pinto (2005, p. 498); Branson (2001b, pp. 350–52).
285 Licht (2004) and his argument why different cultures may approach corporate
governance differently.
286 Williams and Conley (2005, pp. 495–6); Branson (2001b, p. 333) and the
authorities mentioned there.
287 Williams and Conley (2005, pp. 495–6).
these developments. It may be contended that convergence on this basis is

impossible. Some powerful nations, the United States in particular, are very
settled in their contractarian ways. However, it is doubtful whether the share-
holder primacy model has ever been applied with a measure of consistency.
The contractarian approach has never been put into practice in any compre-
hensive sense in the US. Certainly, some aspects of corporate law can be justi-
fied in contract theory but even the most contractarian of corporate law
jurisdictions, such as that of the state of Delaware, only allows a measure of
contracting about corporate governance. In reality, it may be more appropriate
to describe the American corporate law model as one of director primacy.288
Furthermore, most United States jurisdictions have so-called ‘constituency
statutes’ that allow for, but do not oblige, the consideration of a wide range of
stakeholders. They were enacted to allow boards to thwart hostile take-overs
but are wide in their import.289
In Europe social responsibility has played a role in attempts at greater
convergence.290 In the United Kingdom the enlightened shareholder model is
prescribed in s 172 of the Companies Act of 2006. It gives expression to the
interests of shareholders, corporate social responsibility and the dangers of
short-termism. It determines that directors of a corporation must act in the best
interest of its members. Yet, in doing so, they must consider the long-term
effect of those actions, their impact on stakeholders such as employees, suppli-
ers, customers and the environment, as well as the desirability of maintaining
a reputation for high standards of business conduct. In corporate law, the UK
is the mother jurisdiction for many countries around the globe. There is a
strong likelihood that this provision will reverberate throughout the common-
wealth.291
Finally, globalization unleashes forces of convergence outside the market
through transnational co-operation.292 States have taken international anti-
corruption measures,293 and attempts to oblige states to establish uniform
norms for the protection of human rights against abuse by MNCs are being
288 Bainbridge (2002). See the explanation of the manager primacy model:
Hansmann and Kraakman (2001, p. 444).
289 Testy (2002, p. 1237); Springer (1999, p. 85); Branson (2001b) at fn. 63;
Backer (2006, p. 306); Fort and Schipani (2002, p. 430); Licht (2004, pp. 700–705).
See also Tavis (2002, p. 527).
290 Although the process of convergence, even in Europe, has been tortuous, see
henceforth Hopt (2006, pp. 1161, 1174–8). See Hansmann and Kraakman (2001, p.
454) who regard Europeanization as a weak force for convergence.
291 Hansmann and Kraakman (2001) at fn. 13. See also Branson (2001b, p. 336)
on the transferability of UK law.
292 Backer (2008b, pp. 507–8).
293 Above, text next to fn. 243 ff.
made.294 These measures only deal with a limited range of issues and attempts
to oblige MNCs not to infringe human rights have thus far come up against
innumerable obstacles, but they will play some role in undermining a contrac-
tarian convergence.295
So globalization will cause most states to recognize the economic need for
uniformity and efficiency, but it is doubtful whether any grand convergence
will occur.296 Both in attempts at achieving efficiency and deciding whether
efficiency is the primary goal, states will remain sensitive to local culture,297
politics, path dependence and pay-off structures298 as well as the needs of
local economies that are at different stages of development.299 It is more likely
that a number of convergences will occur due to globalization.300
Convergences will take place around several loci, and dynamic convergence
and fragmentation of corporate law will continue to occur despite economic
globalization.301
Moreover, although major convergence on traditional legal rules appears
unlikely, some convergence is occurring beyond national legal systems on the
basis of norms that acquire a quasi-judicial status. First, corporate governance
codes have burgeoned.302 These codes have sometimes been directly
promoted by governments but some, like the King Reports on Corporate
294 Below, 6.2.1.

295 This will be taken up in greater detail below, 6.2.1.
296 Hopt (2006, pp. 1161, 1188) notes that the answer to the question of whether
convergence will take place is neither a simple yes nor a no.
297 Above, text next to fn. 285.
298 Gordon (1999, p. 224). See especially on path dependence in this context,
Bebchuk and Roe (1999, p. 127) especially pp. 151–3, 160–61 on the effect of global-
ization still does not pay sufficient heed to the different perspectives, but see pp. 167–9;
Coffee (1999, pp. 641, 660–61); Milhaupt (1998, p. 1145).
299 Tavis (2002, pp. 525–7); Williams and Conley (2005, pp. 494–5); Coffee
(1999, pp. 643–7); Fanto (2002, p. 1050); Bratton and McCahery (1999, p. 213);
Branson (2001b, p. 341); Licht (2001, p. 147); Pinto (2005, pp. 491 ff.); Cheffins
(2002, p. 13). Cheffins (2001, p. 87) evaluates the statement that globalization will lead
to convergence along Anglo-American lines by considering a number of these influ-
ences. See also Fanto, above p. 1092, ‘All this leads to the final conclusion that there
is a need to develop a better way of debating about corporate finance and governance.
The system should be designed to lead to governance results that promote the most
overall economic wealth, given a country’s legal, political, and cultural constraints.’
See Smits (2007, pp. 1189 ff.) on the dangers of thoughtless unification: he argues that
it may be neither possible nor desirable with reference to Legrand (1997, p. 44);
Legrand (2006, p. 13); Mahoney (2001, pp. 503, 505); Teubner (1998, pp. 11–12).
300 Branson (2002a, p. 1210).
301 Branson (2001b, p. 327).
302 See on the effect of these codes: McCahery (2006, pp. 172–3); Licht (2004,
pp. 741–5).
Governance in South Africa,303 have their origin outside the state.

Nevertheless, most codes have received some support from the state. These
codes tend to be quite similar and they are frequently drafted by committees
who do considerable cross-referencing to other codes.304 Secondly, interna-
tional law firms usually act as the advisers to MNCs and these firms frequently
standardize their training and the advice they give clients, without too much
reference to the jurisdictions they operate in.305 Thirdly, financial advice and
auditing services are normally provided to MNCs by international accounting
firms and they apply or have to apply international standards. They also
develop standard practices according to which they apply these standards.306
Fourthly, the practices and internal standards of MNCs and their international
managers are often standardized and international investors often require stan-
dardization.307
These systems and practices will contribute to conformist behaviour by
firms and the development of uniform hard law, although they do not appear
to be powerful enough to establish grand convergences. Economic globaliza-
tion is probably the most important driver of these developments and they will
in turn bolster the types of convergences that are prophesied by contractarians.
However, this is not always true. The codes are focused on shareholder protec-
tion and increasing shareholder value, but the protection of a wider range of
303 King Report on Corporate Governance (1994) known as King I and King
Report on Corporate Governance (2002) known as King II.
304 Hopt (2006, pp. 1161, 1165, 1182–4). See also the International Corporate
Governance Network which promotes the establishment of corporate governance stan-
dards, at www.icgn.org, accessed 4 May 2009.
305 Hopt (2006, pp. 1161, 1165, 1169).
306 Many countries around the world formally or informally adopt the
International Financial Reporting Standards. These norms are set by the International
Accounting Standards Board. It is the standard-setting body of the International
Accounting Standards Committee Foundation. The Foundation has trustees who
appoint members of the board and provide oversight of its activities. Trustees in turn
are accountable to a Monitoring Board comprising leaders from the Emerging Markets
and Technical Committees of the International Organization of Securities Commission
(IOSCO), the European Commission, the Japan Financial Services Agency (FSA), and
the US Securities and Exchange Commission (SEC). Trustees appoint other trustees
subject to approval by the Monitoring Board, see International Accounting Standards
Board, Who We Are and What We Do (2009), available at www.iasb.org, accessed 3
May 2009. See Coffee (1999, pp. 672–3). The US does not apply IFRS but US GAAP.
The highest authority for laying down US GAAP is the Financial Accounting Standards
Board. It is recognized as the standard-setting body by the Securities and Exchange
Commission in the US. However, these standards are converging in the aftermath of
the so-called Norwalk agreement, see Financial Accounting Standards Board website,
at www.fasb.org, accessed 6 May 2009.
307 On the international market for managers see Pinto (2005, p. 488).
stakeholders is a significant feature of some codes such as the OECD Principles

of Corporate Governance308 and the South African King Reports.309 Auditors
are also becoming more involved in sustainability reporting310 and the auditing
of compliance with certain corporate social responsibility standards.311
Finally, globalization will promote the progression of comparative corpo-
rate law.312 The deficiencies in the theory of corporate law and the chauvinism
of some American corporate law theorists originate in narrow or over-simpli-
fied perspectives of corporate law beyond home states.313 Traditionally there
has been very little contact between corporate lawyers in the English-speaking
world, on the one hand, and continental Europe and countries that have been
strongly influenced by it, on the other. This has changed for the UK due to its
membership of the EU and close legal interactions with continental European
members of the EU. Some parts of the English-speaking world outside the UK
have therefore retreated into Commonwealth corporate law scholarship.314
However, globalization contributes and will in future contribute to a deepen-
ing of comparative corporate law beyond these traditional spheres. A concep-
tion of globalization that goes beyond economic globalization may assist in
furthering sophisticated comparative corporate law. Although we must rid
ourselves of the notion that there is a necessary causal link between compara-
tive law and convergence,315 advances in this form of comparative law prob-
ably will promote weak and diverse but sensible and effective convergences of
corporate laws.
308 www.oecd.org/dataoecd/32/18/31557724.pdf, accessed 3 May 2009; first

drafted in 1999 and updated in 2004.
309 Where a more inclusive approach is followed, see King II Report on
Corporate Governance (2002) introduction paras 4–6, 18.4–18.5, 29.2, 35–7.
310 See above fn. 169.
311 See below 6.2.2 and 6.2.4.
312 Hopt (2006, p. 1161) especially pp. 1167 ff. and his plea p. 1190; Pinto (2005)
on the relationship between globalization, corporate governance and corporate gover-
nance scholarship; Kirk (2006, p. 177) on the idea that this will be one of the most
important consequences of globalization. See Michaels and Jansen (2006) and their
analysis of a transnational legal science, pp. 868–9, 879 on coherence that could be
created by a transnational legal science and pp. 862–3 where this issue is discussed in
the context of Europeanization. Twining (2007, p. 13) humorously typifies current
comparative law as falling within the country and western tradition. He proposes that
this approach will require reconsideration under globalization.
313 Hopt (2006, pp. 1161, 1172) mentions that law and economics have led to
renewed interest in comparative law but it may be asked whether it has been helpful in
developing a sound basis for analysis.
314 The standard textbook in South Africa, Blackman et al. (2002), is rich in
comparative analysis but, with the exception of a few references to jurisdictions in the
United States, all the references are to Commonwealth countries.
315 Hopt (2006, pp. 1161, 1174).
5.3 International Rules
There are several problems with domestic law as a regulator of MNCs in the
globalized world.316 It will be difficult to force MNCs to comply with frag-
mented national corporate laws. Even with convergence of laws there will still
be inconsistent enforcement. Moreover, even if the laws of national jurisdic-
tions are enforced, they may still be inappropriate for dealing with the prob-
lems of MNCs because they are generally focused on dealing with domestic
situations.317
These difficulties can be addressed if international rules are made for
MNCs by means of treaties.318 However, it is unlikely that treaties that
adequately deal with MNCs can realistically be established. It will become
apparent from the ensuing analysis that most attempts to establish compre-
hensive international rules have failed dismally.319 Moreover, there are serious
difficulties with the application of international law to corporations, while
international rules by themselves would not establish effective enforcement
mechanisms.320
A further alternative would be the establishment of an international author-
ity that enforces or creates and enforces international, or if you will global,
legal norms:321 a type of global government or even an institution like the
EU322 that could deal with the problems caused by MNCs under globalization.
It has been proposed that the United Nations, the Bretton Woods institutions,
the World Bank, the IMF or the WTO could fill the void left by the reduced
presence of states in the globalized world.323
The Bretton Woods institutions, and especially the last two, have
contributed substantially to economic globalization through their promotion of
316 See Sub-commission on Prevention of Discrimination (1996) at par. 60.

317 See, on the idea of inappropriate national rules, Michaels and Jansen (2006,
p. 880).
318 Ratner (2001, pp. 538–9). See Michaels and Jansen (2006, p. 866) and Tavis
(2002, p. 502).
319 Redmond (2003, p. 99).
320 These aspects will again be taken up below, text next to fn. 433 ff. A further
possibility is to develop international law, and especially human rights law, in order for
it to become directly applicable to MNCs: Redmond (2003, p. 99) but this argument is
also unlikely to succeed on a sufficiently broad front.
321 See Stiglitz (2006, pp. 207–8); Ratner (2001, pp. 539–40). See Michaels and
Jansen (2006, pp. 854 ff).
322 Michaels and Jansen (2006, p. 864).
323 Tavis (2002, pp. 503–4); Branson (2002a, p. 1211); Branson (2002b, pp. 134,
136–7). See also Michaels and Jansen (2006, pp. 866–7). The international institutions
have gained importance under globalization, see Stiglitz (2002, p. 10).
free trade and neo-liberal economic policies.324 It may be asked whether their
mandates could not be extended to establish them as organs that are responsi-
ble for addressing its negative consequences. Indeed these institutions have in
recent times become serious about addressing some of the concerns about the
negative consequences of globalization.325 It is frequently contended that they
should promote and protect human rights in the face of an onslaught by
MNCs. Although Alston has suggested that trade organizations should not be
used to promote human rights as it would subordinate the human rights agenda
to the trade agenda,326 it is suggested that such regulation could be a signifi-
cant step forward in the promotion of acceptable conduct by MNCs.327
Yet, it will take a true idealist to envisage that effective rules, equivalent to
those imposed by national or regional authorities on local corporations, can
emanate from, let alone be enforced by, these bodies.328 International institu-
tions are hampered by nationalistic interests, narrow briefs and ideological
narrow-mindedness. In any event, traditional rule-making or enforcement by
an institution that is not subject to democratic constraints seems in many ways
more dangerous than having no rules at all.329 It seems that the most
important contribution made by these institutions will remain limited and
indirect.330
6 ALTERNATIVE SYSTEMS FOR CONSTRAINING THE

ACTIVITIES OF GLOBAL CORPORATIONS
Globalization will diminish the power of states to regulate corporations. A
324 The Bretton Woods institutions have been responsible for imposing the neo-
liberal policy regime which Friedman (2000, pp. 101 ff.) refers to as the Golden
Straitjacket, see Branson (2002b, p. 137). See generally for the impact of the World
Bank and OECD on globalization Pinto (2005, p. 491).
325 Pillay (2004, pp. 494–5, 518); Branson (2002b, pp. 137–8); Tavis (2002, p.
503).
326 Alston (2002, p. 815); Howse (2002, p. 651); Pillay (2004, pp. 513–15).
327 Petersmann (2002, p. 621).
328 Branson (2002b) at fn. 74; Pillay (2004, pp. 518 ff.). See Tavis (2002, p. 503)
on steps that would bring the UN closer to being a global government in the economic
sense. See the careful optimism of Wallace (2002, pp. 141, 151–2).
329 Branson (2002b) at fn. 75. Fort and Schipani (2002, p. 431) accept that corpo-
rate governance should not be aimed merely at profit for shareholders but they ulti-
mately baulk at the idea that this can be established by international legislation.
Although there is some democratic basis for these institutions because many of their
members are democratic states, see Tavis (2002, p. 512).
330 See above on anti-fraud initiatives text next to fn. 243 ff. and more generally
below, 6.2.1.
conventional unified system of law that contains consistent legal norms for
regulating corporations in a globalized world is unlikely to develop in the fore-
seeable future. Limited adoption of a range of global CSR models and nodal
convergences of corporate law could contribute to creating frameworks for
legal regulation of MNCs, but their influence will remain weak. Moreover, it
seems unlikely that international laws and institutions can be created to fill this
void. Yet, there are alternative regulatory systems that will go some way
towards constraining abuses by global corporations.
6.1 A System of Competing Rules
A possible source of effective constraint for MNCs is competition of norms.

Arbitrage among national legal systems has been described as a flaw of
national legal systems as regulators of the activities of MNCs.331 But can this
fragmentation be a systemic strength when viewed in another light? Global
diversity and free choice may allow incorporators to choose the regulatory
regime that they want for their corporations. Competition of norms can take
two forms.332 In the informal system the laws of different jurisdictions
compete or are allowed to compete. In the formal system an optional interna-
tional system of corporate law rules is provided for which parties can opt.333
It is a bottom-up solution that allows users of the law to create their own law
and, in the process, establish the norms that they prefer.334 A process of
competition of norms may, but will not necessarily, lead to convergence of
norms.335 Convergence will occur only where the system becomes static or
where adjustment to best norms occurs relatively quickly and the needs of
users of norms are homogeneous. The aim of creating a competitive system is
not convergence but the establishment of choice for what parties regard as the
best possible norms. According to this approach regulation becomes a
commodity.
331 Above, 5.1.

332 See McCahery (2006, pp. 155 ff.) for analysis of the types of conditions that
will have to be met before competition will occur.
333 See generally on competition of norms: Hopt (2006, pp. 1161, 1189); Armour
(2006, p. 369); McCahery (2006, p. 155) especially the description p. 159; Smits (2007,
p. 1196) especially pp. 1197 ff. on the creation of a formal system especially with refer-
ence to Tiebout (1956, p. 416). See Michaels and Jansen (2006, pp. 863–4) on compe-
tition of norms in Europe and its relation to other approaches to European law and p.
867. See also Backer (2007, pp. 1742 and 1748) on the relationship between competi-
tion of norms and the creation of international norms.
334 On the benefits of competition see McCahery (2006, p. 158).
335 See McCahery (2006, pp. 157, 185) and his discussion of differences between
the EU and 19th-century America; Smits (2007, pp. 1198–9).
If competition occurs, it may mean that the best norms will receive greater
acceptance. However, the corporate law experience of competition of norms
has not necessarily been positive. In the United States incorporators are free to
choose the state where they want to charter corporations. States receive an
income from those corporations that are chartered in their jurisdictions. They
have an incentive to compete for charters. Although some have touted this as
a competitive system that has allowed for the best-possible rules to be
provided by supply and demand, it seems that the better view is that it has led
to a so-called race to the bottom. Weak regulation of corporations often has
attracted the greatest number of charters. The problems that exist in the US
will be magnified if it is applied in a world that is much more diverse and
where regulation outside corporate law is much weaker.336
Many stakeholders are affected by the activities of corporations.
Competition of norms will work only if there is careful scrutiny of the ideal
norms by a broader range of stakeholders that are affected by them and if their
preferences can be reflected in a balanced manner in the final decision to
choose norms.337 Managers have the strongest incentive to investigate and
consider the rules that will apply to a corporation if it is incorporated in partic-
ular jurisdictions. They are mostly responsible for selecting legal advisers
who, in turn, help them to select jurisdictions that are most favourable to their
interests. Other stakeholders are not informed or powerful enough to counter
the influence of managers. Competition of rules therefore allows managers to
exploit the situation in their favour.
Furthermore, it is unlikely that information will be properly evaluated in
order to ensure optimal choices. The cost of obtaining information and
comparing norms will be so high that those who choose norms will not make
rational choices.338 First mover advantages may favour particular rules even
though they are not rationally the best rules.339 Culture often pre-determines
choices to such an extent that it is unlikely that incorporators will choose the
optimal system.340 Some systems may lose ground for reasons that have noth-
ing to do with their real ability to meet the needs of the stakeholders to the
corporation.
336 See generally Cary (1974, p. 663); Baysinger and Butler (1985, pp. 431, 433);
Fischel (1982b, p. 913); Kahan and Kamar (2002, p. 679); Bebchuk and Hamdani
(2002, p. 553); Roe (2003, p. 588); Smits (2007, p. 1199); Barnard (2000, p. 57).
337 See McCahery (2006, pp. 160–61) who accepts that competition will not work
where externalities are generated.
338 Smits (2007, p. 1200) admits to these difficulties but proposes some solutions
although it is doubted whether they will properly address the concerns.
339 Coffee (1999, pp. 703–4).
340 See the comments of McCahery (2006, pp. 178–9) on the role of culture in the
EU.
It is also difficult to determine the extent to which choices should be

allowed. In the context of contract law it has been proposed that a system of
competition should allow for a choice of specific norms and not only a choice
of systems.341 The reason for this proposal is obvious. If systems can be chosen
(as is generally the case in US corporate law) the choosers will be (at least to
some extent) captured once a system is chosen, whether they like a particular
norm or not. A choice of jurisdiction then requires a difficult evaluation of the
aggregate effect of a set of norms. However, the notion that specific norms can
be chosen is equally problematic. Norms are not discrete enough to allow for
specific selection and the cost of doing continuous comparisons will in most
cases be so exorbitant that parties will not engage in it effectively.
Those not blinded by public choice theory and neo-liberalism will still
believe that states set normative standards through law and that it should not
be obliterated by a bottom-up system. It seems that competition of norms in
the climate that has persisted in the last few years presents more of a danger
than an opportunity.
Competition of norms may have a chance of limited success in a world that
has been transformed by the sobering events of the credit crunch and a new
humility regarding the benefits of free markets. The current financial crisis
may cause shareholders and stakeholders to become more responsive and this
may be mirrored in more balanced choices by managers of incorporating
firms, but too many obstacles to optimal choices will remain. Competition of
norms probably will play a very weak role in the regulation of MNCs.
6.2 The Establishment of Constraints outside Traditional Law342
The consideration of corporate law and its application in a globalizing world

should not merely be concentrated on law in the traditional sense.343
Globalization in the Twenty-First Century brings with it a whole host of problems

that corporate law has not faced previously. In fact, perhaps corporate law is not up
to the task and will never face the problems posed by the size and geographical reach
of large multinationals … Rather than the organic corporate law of nation states,
under which corporations are formed and regulated, and the power allocated among
the various governance organs of the corporation, our attention will be shifted away
from what we have heretofore dealt with as ‘corporate law’. Instead, in the large
multinational corporate sphere, we will focus much more upon soft law.344
341 Smits (2007, pp. 1199–1200).

342 See Stephan (1996–97, pp. 681, 707) and Special Representative Report
(2007) at par. 45 on the meaning of soft law.
343 Backer (2006) especially at pp. 321–2; Friedman (2000, pp. 205 ff.). See
Michaels and Jansen (2006, p. 868).
344 Branson (2002b, p. 138); Branson (2000, p. 670); Backer (2008b, pp. 508–9).
Michaels and Jansen correctly show that our conception of law requires some
reconsideration because of globalization.345 Globalization transfers a
measure of control from governments to global governance networks.346 The
conduct of MNCs will not only be constrained by impersonal markets but
also by the pressures of several overlapping governance networks.347 As the
recent financial crisis has indicated, market exchanges depend on trust. This
may be enhanced by regulation and it may be in the interest of MNCs to
participate in the creation of regulation.348 States will not be irrelevant in
these networks. They will participate in them but will not be able to exercise
their traditional state powers.349 International institutions will not replicate
the state when it comes to global activities but they will be significant actors
in these networks. Moreover, private participants that include non-govern-
mental organizations and MNCs will themselves be involved in many of
them, while MNCs will be the target of others.350 The forces that constrain
MNCs in the globalized world will reflect the complex interconnectedness
produced by globalization.351
So whence will these networks derive their validity and legitimacy?352 The
justification for the legal rules of many nation states is founded in a democra-
tic process. But for networks there are no simple answers to this question.353
345 See Michaels and Jansen (2006, pp. 868 ff.); Smits (2007); Twining (2007).
346 Tavis (2002, p. 489) see above, text next to fn. 27 ff. See also Backer (2007)
who speaks of ‘autonomous systems for the regulation of economic behaviour’ and see
the description of actors pp. 1748 ff. and the reliance of the sociological idea of func-
tional differentiation and polycentric globalization, see also pp. 1768, 1776, 1783. See
also Backer (2008b, pp. 508–9) on regulation of functionally distinct communities and
the engagement of regulation at the interstices of lawmaking.
347 Fort and Schipani (2002, pp. 425–6).
348 Backer (2007, pp. 1747–8).
349 Backer (2007) at fn. 5 with reference to Teubner (1993, p. 41), see also Backer
above pp. 1768–74, 1777 on structural coupling and the limits of private networks, see
also pp. 1761–2 on the role of the state in private networks and Backer (2008, pp.
522–3).
350 Tavis (2002, pp. 489, 501 ff., 532–3, 538, 543).
351 See Michaels and Jansen (2006, pp. 869–71) and their analysis of privately
created orders; Friedman (2000, pp. 286 ff.).
352 See Michaels and Jansen (2006, pp. 873–7) who discuss different bases for
determining validity of law in the time of globalization. See also Special
Representative Report (2007) at par. 92 on the standards which grievance mechanisms
must meet.
353 Michaels and Jansen (2006, p. 880) who state that it will be difficult to justify
non-state law that is not rooted in closed communities, although they state at p. 881 that
private law was never completely justified in democracy because of the role of tech-
nocrats in developing it.
Sometimes legitimacy will be rooted in the indirect involvement of states.354

In other situations legitimacy will have to be achieved by more sophisticated
means. Perceived accountability, transparency and the ability to achieve goals
that are regarded as worthy will be essential in achieving legitimacy.355
6.2.1 International institutions

International institutions have thus far favoured voluntary codes of conduct as
tools for keeping the activities of MNCs in check. The Governing Body of the
International Labour Organization (ILO) adopted the Tripartite Declaration of
Principles Concerning Multinational Enterprises and Social Policy in 1977.356
The declaration merely offers guidelines. Yet, periodic surveys are conducted
to determine the effect of the declaration and a party who disputes an inter-
pretation of its provisions can apply to the ILO for an interpretation through a
procedure that was developed in 1981.
The Organisation of Economic Co-operation and Development (OECD)
has issued the Guidelines for Multinational Enterprises.357 They were drafted
by the Member States of the OECD and give guidance to MNCs on labour
practices, environmental practices, consumer protection and anti-corruption
measures. These guidelines are also voluntary,358 but states adhering to them
are obliged to set up National Contact Points that, inter alia, must deal with
grievances with MNCs.359 The OECD is frequently viewed as an elitist repre-
sentative of the rich developed nations. But, it similarly represents the coun-
tries that mostly serve as homes for MNCs and this enhances the legitimacy of
its guidelines.360
The World Bank has issued the Legal Framework for the Treatment of
Foreign Investment,361 which lays down standards for foreign investments
354 See also Tavis (2002, p. 539) and his discussion of the ISO (further analysed
below, text next to fn. 522) and the Council of Chemical Associations.
355 Tavis (2002, pp. 509–11, 543). See the basis upon which divisions are made
in the Special Representative Report (2007) at par. 6.
356 Available at www.ilo.org/public/english/employment/multi/download/decla-
ration2006.pdf, accessed 30 November 2008. It has been updated twice, in 2000 and
2006.
357 See OECD, Guidelines for Multinational Enterprises (1999), available at
www.oecd.org/daf/cmis/cime/mneguide.htm, accessed 15 April 2009.
358 See how they are applied by institutional investors in the UK: Williams and
Conley (2005, p. 542).
359 Special Representative Report (2008) at paras 85, 98–9; Special
Representative Report (2007) at par. 50.
360 Special Representative Report (2007) at par. 49 notes that these instruments
are widely referenced by governments and business and that they may crystallize into
harder norms.
361 (1992) at www.worldbank.org, accessed 4 May 2009.
that are to be applied by host states and investors. These norms again are
voluntary but they have gained broad acceptance.362 They are also bolstered
by the support of the International Finance Corporation, which is a member of
the World Bank group.363 It sets performance standards which borrowing
corporations must meet and these include human rights elements. Depending
on the type of project, impact studies may be required for financing. These
studies will include the human rights impact of a project. An ombudsman who
may hear complaints has been appointed to ensure that borrowers comply with
the standards.364
Next, although attempts of the United Nations to create hard law in this
area are inauspicious, they have contributed substantially to the establishment
of soft law.365 In the wake of certain misadventures by MNCs, especially their
involvement in the overthrow of a Marxist government in Chile, the UN
became interested in these undertakings. The UN General Assembly estab-
lished the Commission as well as an Information and Resource Center on
Transnational Corporations in 1974.366 This Commission prepared the draft
UN Convention on Transnational Corporations (UNCTC), but it came to
naught in the mid-1990s.367 The draft Convention attempted to determine the
relationship between MNCs and host countries.368 Yet, it was too ambitious
and was stymied by cold war and north–south conflicts.369 The UNCTC was
362 Wallace (2002, pp. 145–6). Ratner (2001, p. 537) who also notes that the
World Bank considers the human rights impacts of its projects.
363 See the IFC website, www.ifc.org, accessed 3 May 2008.
364 Special Representative Report (2007) par. 51.
365 Tavis (2002, p. 502) calls the contribution of the UN and related institutions
‘modest’.
366 The Commission was established pursuant to the Economic and Social
Council (ECOSOC) Resolution 1913, UN ESCOR, 57th Session Supplement No. 1A,
at 31, UN Document E/5570/Add. 1 (1974). The Information and Research Center was
established by ECOSOC Resolution 1908, UN ESCOR, 57th Session Supplement No.
1, at 13, UN Document E/5570 (1974). See Rubin (1976, p. 73). See Ratner (2001, pp.
456–7) for an analysis of the political atmosphere in which these developments took
place.
367 Final draft version, UN Document E/1990/94 (June 1990). For the develop-
ment, see also Draft United Nations Code of Conduct on Transnational Corporations,
UN Document E/C.10/1982/6 (5 June 1982). For the subsequent revision, see Draft
United Nations Code of Conduct on Transnational Corporations, UN Document
E/1983/17/Rev.1 (1983), reprinted United Nations Draft International Code of
Conduct on Transnational Corporations International Legal Materials, 23 (1984), 626.
See Branson (2002b, p. 136); Rubin (1995, pp. 1275, 1285–6); Redmond (2003, pp.
96–7).
368 Hillemanns (2003) par. 2.
369 Mensch (2006, p. 263).
absorbed into the UN Conference on Trade and Development (UNCTAD) in

2002. UNCTAD has continued to keep information on MNCs.370
In the meantime, the regulation of MNCs found a home in the UN’s human
rights institutions.371 The Sub-Commission on the Promotion and Protection
of Human Rights (prior to 27 July 1999 the Sub-Commission on Prevention of
Discrimination and Protection of Minorities) was the major subsidiary body of
the United Nations Commission on Human Rights.372 The Human Rights
Commission is a political body consisting of representatives of states, but the
Sub-Commission is a body of experts. In 1998 the Sub-Commission estab-
lished a sessional working group to examine the working methods and activi-
ties of MNCs.373 The mandate of the working group was extended for a further
three years in 2001.374 It drafted and finalized the Norms on the
Responsibilities of Transnational Corporations and other Business Enterprises
with regard to Human Rights in 2002 and 2003.375 The Norms were then
370 See http://unctc.unctad.org/aspx/UNCTCEvolution.aspx, accessed 30 April

2009, outlining the reorganization of the economic sector that resulted in the dissolu-
tion of the UNCTC and the transfer of the programme on transnational corporations to
UNCTAD. See Backer (2006, p. 315).
371 Backer (2006, p. 321).
372 In 2006 this institution was replaced by the United Nations Human Rights
Council.
373 Sub-Commission on Prevention of Discrimination and Protection of
Minorities, Resolution 1998/8, UN Document E/CN.4/Sub.2/Res/2001/3 (20 Aug
1998). The idea of a working group for this purpose had its origin in resolution
1997/11, Report of the Sub-Commission on Prevention of Discrimination and
Protection of Minorities on Its Forty-ninth Session, Res. 1997/11, UN Document
E/CN.4/1998/2, UN Document E/CN.4/Sub.2/1997/50 (1997) which asked El-Hadji
Guissé to present a working document to the committee, see Sub-Commission on
Prevention of Discrimination (1998).
374 Sub-Commission on Human Rights. Resolution 2001/3, UN Document
E/CN.4/Sub.2/Res/2001/3 (15 Aug 2001).
375 These Norms were grounded in three reports: Sub-Commission on Prevention
of Discrimination (1995), above fn. 106; Sub-Commission on Prevention of
Discrimination (1996), above fn. 93; Sub-Commission on Prevention of
Discrimination (1998), above fn. 110. The agenda of the working group was set in
1999, Report of the Sessional Working Group on the Working Methods and Activities
of Transnational Corporations on Its First Session, UN Document E/CN.4/Sub.2/
1999/9. A first draft was prepared and considered in August of 2000, Report of the
Sessional Working Group on the Working Methods and Activities of Transnational
Corporations on Its Second Session, UN Document E/CN.4/Sub.2/2000/12, paras.
26–58. Members of the working group then organized a seminar in March 2001, Report
of the Seminar to Discuss UN Human Rights Guidelines for Companies, UN Document
E/CN.4/Sub.2/2001/WG.2/WP.1. A second draft was considered in August 2001, Draft
Universal Human Rights Guidelines for Companies, Introduction, UN Document
E/CN.4/Sub.2/2001/WG.2/WP.1. At working committee meetings in July/August 2002
approved by the Sub-Commission in 2003,376 they were revised and re-issued

with a commentary on 26 August 2003.377
The Norms were the first international attempt to create human rights
oriented rules that are specifically aimed at corporations.378 The basic philos-
ophy behind them was that MNCs had gained power, that responsibility came
with power and that human rights standards were necessary to ensure respon-
sibility.379 The Norms recognized that MNCs operated across borders and that
this meant that they could conduct economic activities beyond the influence of
national laws.380 They acknowledged that states were the primary bearers of
responsibility for human rights. They accordingly were meant to oblige states
to ensure compliance with the Norms.381 But most controversially, they also
addressed corporations and their employees directly. They referred directly to
the responsibilities and even obligations of corporations to respect, protect and
promote human rights recognized in national and international law.
Corporations were to do this within their respective spheres of influence.382
The obligations under the Norms were to apply equally in host and home
states.383
On a substantive level the Norms mostly did not create anything novel. They
reflected norms that had already gained acceptance in the codes, guidelines and
the Norms started to take their current form, UN Document E/CN.4/Sub.2/2002/

WG.2/WP.1. The working group then received comment on the draft document. The
documents were again revised and the working group agreed on drafts to be presented
to the Sub-Commission at its meetings in July/August 2003, see Report of the Sessional
Working Group on the Working Methods and Activities of Transnational Corporations,
UN Document E/CN.4/Sub.2/2003/13 with reference to Norms on the Responsibilities
of Transnational Corporations and Other Business Enterprises with Regard to Human
Rights, UN Document E/CN.4/Sub.2/2003/12/Rev.1 and Commentary on the Norms on
the Responsibilities of Transnational Corporations and Other Business Enterprises
with Regard to Human Rights, UN Document E/CN.4/Sub.2/2003/38/Rev.1. For a
more comprehensive analysis of their development, see Backer (2006, pp. 328–33);
Weissbrodt and Kruger (2003, pp. 903–8); Weissbrodt (2005, pp. 55, 67–9).
376 Resolution 2003/16 UN Document E/CN.4/Sub.2/2003/L.11 (13 Aug 2003) at
p. 52; Backer (2006, p. 330).
377 The Norms were set out in Norms without Commentary (2003) and with a
commentary, Norms with Commentary (2003).
378 Hillemanns (2003) par. 1.
379 UN Document E/CN.4/Sub.2/2003/12/Rev.2 (26 Aug 2003) preamble;
Weissbrodt and Kruger (2003, p. 901). See the argument of Backer (2006, pp. 371–4)
on the effect of this argument on the distinction between the role of states and corpo-
rations or the public–private debate. See also the further argument Mensch (2006, p.
249) that MNCs often performed public activities.
380 Norms without Commentary (2003) preamble.
381 Norms without Commentary (2003) preamble, paras 1, 17, 18.
382 Norms without Commentary (2003) preamble, par. 1.
383 Norms with Commentary (2003), at par. 1(a).
other normative frameworks of corporations, the ILO, the OECD, and civil
society organizations.384 The Norms also acknowledged that they had to be
subject to review as new issues emerged.385
When it came to enforcement and implementation a wide-ranging scheme
was proposed.386 The Norms were to form the basis of all contractual relations
of MNCs and were to be adopted as the internal rules of corporations.387 They
foresaw a comprehensive scheme for monitoring the activities of MNCs on an
international level. Monitoring was to involve the UN, other national and
international governance networks, civil society and MNCs themselves.388
Monitoring and implementation was to require ‘amplification and interpreta-
tion of intergovernmental, regional, national and local standards with regard to
the conduct of transnational corporations’.389 The UN’s human rights bodies
were to monitor implementation by imposing reporting duties on states and
adopting general comments and recommendations interpreting obligations.
The structures of the UN Commission on Human Rights were to use the
Norms and other relevant international standards to raise concerns about the
activities of MNCs. The Sub-Commission and its working group were also to
monitor compliance and establish best practice by receiving information from
civil society and giving MNCs an opportunity to respond.390 It was further
envisaged that MNCs would have to establish transparent monitoring and
reporting mechanisms, establish proper and formal avenues for complaints
about compliance with the Norms, do periodic assessments of the human
rights impacts of their activities with reference to the Norms and, to the extent
of their resources and abilities, do similar impact assessments before pursuing
new projects or initiatives. Assessments that exposed inadequate compliance
were also to set out plans for remedial action or reparations.391 States were to
establish and reinforce legal and administrative frameworks to ensure that
corporations implement the Norms.392 Corporations were to use due diligence
384 Backer (2006, pp. 343 ff.); Redmond (2003, p. 101).

385 Norms without Commentary (2003) preamble.
386 See the summary Backer (2008a, pp. 634–7).
387 Norms with Commentary (2003) at par. 15. This approach is controversial in
international law, see Backer (2006, p. 334) with reference to Wiener (1999, p. 20) and
the impact of this approach, pp. 371 ff. and especially pp. 375–84; Backer (2008a, p.
633).
388 Norms without Commentary (2003) at par. 16; Weissbrodt and Kruger (2003,
pp. 915 ff.); Backer (2006, p. 385) and the description of the difficulties that arose here.
389 Norms with Commentary (2003) at par. 16(a).
390 Norms with Commentary (2003) at par. 16(b). The Special Representative
Report (2006) at par. 59 regarded the approach in the Norms to be excessive but
‘largely symbolic’.
391 Norms with Commentary (2003) at par. 16(d)–(i).
392 Norms without Commentary (2003) at par. 17.
to ensure that their activities did not constitute human rights abuses and that
they did not benefit from abuses.393 They were to pay reparation to persons
who were adversely affected by breaches of the Norms.394
These Norms accordingly would have established a very robust frame-
work for regulating MNCs. However, it became apparent that powerful coun-
tries and business regarded the Norms as unpalatable. In 2004 the Norms got
into difficulty.395 The imposition of direct duties on MNCs was labelled in
contravention of international law. The Norms were criticized for being in
some respects vague, being unnecessarily strict and blurring the distinction
between states and corporations as promoters of human rights.396 A process
was set in motion by the Human Rights Commission which meant that the
Norms were shelved. They became a statement of voluntary, aspirational
goals.397 It could be argued that they have an enhanced status as they received
considerable support from sectors of civil society.398 However, the failure to
adopt the Norms meant that the UN only continued with more modest
393 Norms with Commentary (2003) at par. 1(b).

394 Norms without Commentary (2003) at par. 18: for the purpose of damages,
the imposition of criminal sanctions or otherwise national or international courts were
to apply national or international law. See generally Weissbrodt and Kruger (2003, pp.
912–13).
395 See Weissbrodt (2005, pp. 70–71) on the role of big business and the Milton
Friedman argument, mentioned above fn. 146, that business has no social responsibil-
ities.
396 Report of the United Nations High Commissioner on Human Rights on the
Responsibilities of Transnational Corporations and Related Business Enterprises with
Regard to Human Rights, UN Document E/CN.4/2005/91 (15 Feb 2005), see especially
paras 20–21 for the arguments for and against the Norms, see Backer (2006) especially
at pp. 374–80. See also the argument of Mensch (2006, pp. 265–6) on why developing
countries did not like the Norms. She refers to the Norms as being ‘dead on arrival’ at
p. 268.
397 Decision 2004/116 UN Document E/CN.4/Sub.2/2003/12/Rev.2, the
Commission recommended that the Economic and Social Council (1) confirm the
importance of the question of the responsibilities of multinational corporations (2)
request the Office of the High Commissioner for Human Rights to compile a report
setting out the scope and legal status of current initiatives in the field (3) affirm that the
Norms have no legal status, had not been requested by the Commission and could not
be monitored by the Sub-Commission. The office of the High Commissioner then
produced a report which proposed merely that the Commission should ‘maintain the
draft Norms among existing initiatives and standards on business and human rights,
with a view to their further consideration’, see Report of the United Nations High
Commissioner on Human Rights on the Responsibilities of Transnational Corporations
and Related Business Enterprises with regard to Human Rights, UN Document
E/CN.4/2005/91 (15 Feb 2005). See Backer (2006, p. 331); Weissbrodt and Kruger
(2003, pp. 913–22).
398 Backer (2006, p. 288).
attempts to regulate the activities of MNCs and the Norms have had a limited
impact on further developments.
In the wake of the failure of the Norms, the much more business-friendly
Global Compact (GC) became the most important instrument for constraining
the conduct of MNCs. The UN Secretary-General introduced the idea to
promote corporate social responsibility in 1999399 and this proposal culmi-
nated in the GC. It became operational on 26 July 2000. It is less ambitious
than the Norms when it comes to an enforcement strategy but it emphasizes
participation to a greater degree than the Norms. Although promoted by the
Secretary-General, endorsed by the General Assembly of the UN and
supported400 by six participating UN agencies,401 the GC is a multi-stake-
holder initiative. Governments, NGOs, and corporations are also involved in
it as actors.402 A corporation commences participation by sending a letter to
the Secretary-General expressing its support for the compact.403 The corpora-
tion is then expected to change business practices, publicly advocate the GC
and publish an annual communication on progress in its annual or sustain-
ability report.404
The GC focuses on leadership and it specifically requires those who lead
corporations to subscribe to the principles of the GC.405 The GC prescribes ten
principles. However, compliance with these principles is not formally moni-
tored or policed.406 The GC operates on two levels. It aims to get participating
corporations to internalize the values of the compact and facilitate collective
399 See www.unglobalcompact.org, accessed 6 May 2009. The GC started when

the Secretary-General of the UN, Kofi Annan, gave an Address at the World Economic
Forum in Davos of 31 January 1999, UN Document SG/SM/6448 (1999). See Backer
(2007) at fn. 46.
400 See the renewed mandate A/res/62/211 of 2008.
401 The Global Compact, The Global Compact’s Next Phase (2005), par. 3.15,
available at www.unglobalcompact.org, accessed 20 November 2008.
402 Although it has perhaps not obtained sufficiently broad support yet, see
Oshionebo (2007), above fn. 111, at pp. 25–30.
403 The Global Compact, What is the Global Compact? (2008), 4 available at
www.globalcompact.org, accessed 20 November 2008.
www.globalcompact.org, accessed 20 November 2008.
405 The Global Compact, What is the Global Compact? (2008), 4 and Policy on
the Communication on Progress (updated 2008), available at www.globalcompact.org,
accessed 20 November 2009.
406 See for instance the weak enforcement measures, The Global Compact, The
Global Compact’s Next Phase (2005), part 4, available at www.globalcompact.org,
accessed 20 November 2009, especially its procedure for dealing with complaints,
Oshionebo (2007, pp. 24–5).
problem-solving between them.407 It establishes networks within which partic-

ipants can act to promote its values. Dialogue between participants, isolation of
problems and co-operative resolution of those problems lie at the heart of the
GC.408 Learning forums aid corporations in putting principles into practice by
means of case studies.409 Networks established along regional, national and
industrial lines allow corporations to engage with stakeholders.410
Through these mechanisms, the GC not only provides an avenue for dialogue
between business and civil society, it also hopes to ‘weave a web of values around
the global marketplace’, foster cooperation between business and civil society, and
identify and promote the adoption and dissemination of best practices.411
In summary, the main features of the global compact are that it is reflexive,
interactive and self-referential.412
Naturally, the GC has met with mixed reactions. Some see it as a great step
forward for global regulation of MNCs. It can allow business to retrieve its
moral purpose.413 It stresses the importance of embedding values rather than
enforcing them.414 Others criticize its voluntary nature and lack of strict
enforcement mechanisms in the traditional legal sense. It allows corporations
to promote their images without truly improving their conduct,415 creates the
impression that respect for human rights is not peremptory,416 gives MNCs
407 UN Global Compact, How the Global Compact Works: Mission, Actors and
Engagement Mechanisms (2003), p. 2; The Global Compact, Report on Progress and
Activities July 2002–July 2003 (2003), 27 both available at www.globalcompact.org,
408 UN Global Compact Office, How the Global Compact Works: Mission, Actors
and Engagement Mechanisms (2003), p. 5 available at www.globalcompact.org,
409 The Global Compact, Report on Progress and Activities July 2002–July 2003
(2003), 33–9, available at www.globalcompact.org, accessed 20 November 2009; Kell
(2003, pp. 35, 39–41).
www.globalcompact.org, accessed 20 November 2009; Global Compact, The Global
Compact: A Network of Networks 2 and Guidance for Networks (2005), available at
www.globalcompact.org, accessed 20 November 2009; Kell and Levin (2003, p. 151).
411 Oshionebo (2007, p. 16), the passage quoted by him comes from Ruggie
(2002, pp. 297, 301).
412 Oshionebo (2007, p. 16). See generally on self-referential networks for
constraining MNCs, Backer (2007, pp. 1779–80).
413 Ruggie (2002, p. 297); Williams (2004, pp. 755, 761).
414 See above, text next to fn. 219, on the importance of this argument in justify-
ing CSR.
415 See Oshionebo (2007, p. 18) on the limits of shaming as an enforcement tool.
416 Ibid.
inordinate power in international institutions, is based on the simplistic and

incorrect premise that MNCs do not deliberately infringe human rights but
rather they do so because of a lack of knowledge417 and illustrates the unwill-
ingness or inability of the UN to address the problems created by MNCs head-
on.418
At least the GC does not mark the end of the road for the UN and its
attempts to ensure that MNCs respect human rights. John Ruggie was
appointed as the Special Representative of the Secretary-General on the issue
of Human Rights and Transnational Corporations on 28 July 2005 against the
backdrop of failed attempts within the UN to establish strong norms to regu-
late the activities of MNCs. His mandate is to research and make recommen-
dation for the strengthening of the environment that provides protection
against human rights abuses by MNCs.419 The Special Representative accepts
that states bear the primary responsibility for vindicating human rights in this
context and sees his mandate as strengthening the promotion and protection of
human rights in relation to MNCs. For this purpose, he primarily has to obtain
evidence and provide conceptual clarification.420 His three reports to the
Commission on Human Rights, now the Human Rights Council, record his
progress.421
The Special Representative accepts that markets and MNCs as actors in
those markets are important drivers of economic development but that they
only function properly if they are embedded in rules, customs and institutions.
Markets pose the greatest risk when their scope and power far exceed their
institutional underpinnings.422 Globalization has caused governance gaps and
417 Oshionebo (2007, pp. 20–22).

418 Taylor (2001, p. 975); Oshionebo (2007) who also lists a number of other crit-
icisms.
419 The Commission on Human Rights requested the Secretary-General to
appoint a special representative for 2 years and it set out the mandate for such a repre-
sentative, see Decision 2005/69; for the content of the resolution see UN Document
E/CN.4/2005/L.11/Add. 7, and for the resolution see UN Document E/CN.4/2005/
L.10/Add.17 (April 20, 2005). The Economic and Social Council approved the request
on 25 July 2005 by Decision 2005/273, available at www.un.org/ecosoc/docs, accessed
2 May 2009. The Human Rights Council extended this mandate by Resolution 8/7
A/HRC/RES8/7 (18 June 2008) available at www.ap.ohchr.org/documents/E/HRC/
resolutions, accessed 2 May 2009. See also Weissbrodt (2006, p. 137).
420 Special Representative Report (2006) at par. 7.
421 Special Representative Report (2006); Special Representative Report (2007);
Special Representative Report (2008), fn.100.
422 Special Representative Report (2006) at par. 18; Special Representative
Report (2007) at paras 1–2, 83; Special Representative Report (2008) at par. 2. See also
Weissbrodt and Kruger (2003, p. 902).
the major concern is to determine how these gaps can be narrowed.423

Developing host states often do not have the institutional capacity to address
abuses and home states are unwilling or do not have the legal frameworks that
enable them to address the commission of offshore abuses of human rights.424
The Special Representative acknowledges that the international community
is at an early stage of developing norms that provide protection against human
rights abuses by MNCs.425 The business and human rights debate lacks an
authoritative focal point. There are many initiatives but they have not reached
the scale where it can be said that protection is adequate.426 Substantial inter-
national protection is already afforded to MNCs through bilateral investment
treaties which allow for binding arbitration.427 Yet, the same cannot be said of
protection against abuses of human rights committed by MNCs.428 To illus-
trate this, the Special Representative refers to a recent challenge by a European
corporation of South Africa’s BEE laws.429
The Special Representative goes to considerable trouble to evaluate the
Norms.430 He concludes that they contain useful elements. The survey of
rights that could be affected by business and the descriptions of the types of
practices that must or should be avoided could rightly have focused the
debate on substantive issues.431 Instead, the Norms ‘became engulfed by its
own doctrinal excesses’.432 Two aspects are emphasized. First, the Norms
overshot the mark when it came to attempts to impose obligations on corpo-
rations.433 Unlike individuals, corporations cannot be brought before the
423 Special Representative Report (2006) at par. 9 ff.; Special Representative

Report (2007) at par. 2; Special Representative Report (2008) at paras 3, 11.
425 Special Representative Report (2008) at par. 1; Special Representative Report
(2006) at par. 54.
427 See also in this regard Wallace (2002, pp. 146–7).
428 Special Representative Report (2008) at paras 11–16. See the first part of the
argument Special Representative Report (2006) at par. 12; Redmond (2003, pp. 79–80).
429 Piero Foresti, Laura De Carli and others v Republic of South Africa
(International Centre for Settlement of Investment Disputes Case No. ARB (AF)/07/1).
See also Special Representative Report (2008) at paras 34–6.
430 Special Representative Report (2006) at par. 54; see also the many references
to his reports in the discussion of the Norms above, text next to fn. 378 ff.
431 Special Representative Report (2006) at paras 57–8.
432 Special Representative Report (2006) at par. 59. See generally on the prob-
lems with the Norms, Special Representative Report (2008) at par. 51. See also on the
criticisms of the Norms, Backer (2008a, p. 637).
433 Special Representative Report (2006) at paras 60–65. See the criticism,
Special Representative Report (2008) at paras 65–72, and his earlier views, Special
Representative Report (2007) at par. 9. See generally on the duties imposed on MNCs:
International Criminal Court.434 Arguably, if direct international law duties are

imposed on individuals and not only on states then those duties will apply also
to corporations. Yet, it is generally accepted that individuals and thus corpora-
tions will seldom be subject to these types of duties. They are limited to an
exceptional list of gross violations of human rights. Secondly, the proposals
did not get the balance between the responsibility of states and corporations
rights.435 The Norms were accordingly regarded as a distraction rather than a
basis for moving the debate forward.436
The Special Representative accepts that there is no single bullet solution to
the difficulties that he has to confront. States, business and civil society need
to learn to do things differently and these things must cohere and become
cumulative.437 For this purpose he established a framework.438 The frame-
work is constructed on three pillars: the duty of states to guard human rights,
the responsibility of corporations to respect human rights and the provision of
remedies for abuses of human rights committed by corporations.439
As to the first pillar, it is accepted that the international human rights
regime rests upon the bedrock role of states.440 There is disagreement as to
whether home states are obliged to provide protection against human rights
abuses committed by corporations based within their territories, if those
abuses are committed abroad. However, there is greater agreement that states
Weissbrodt and Kruger (2003, pp. 915–16); Weissbrodt (2006, pp. 135, 136–7) espe-
cially p. 139 and Weissbrodt (2008, pp. 373, 386). On the criticism voiced against the
approach in the Norms, Weissbrodt (2005, p. 67).
434 Redmond (2003, pp. 71–2); McLoughlin (2007, pp. 159–60); Pillay (2004, p.
521); Special Representative Report (2007) at par. 19 ff. stresses that direct application
is only relatively certain in the context of criminal liability, see par. 44; Special
Representative Report (2006) at paras 61–4 with reference to Sosa v Alvarez-Machain
542 US 692, 732 (2004). These issues are controversial and there are arguments either
way. The approach of Ruggie was heavily criticized by some NGOs; for a good
summary of all arguments, see Duruigbo (2008). See the more expansive approach of
Ratner (2001) but see also his explanation of the more conventional position pp. 466,
490–92. See also Backer (2006, p. 369) who foresees a role for the International
Criminal Court in terms of the Norms.
435 Special Representative Report (2006) at paras 66–8. See Weissbrodt (2008, p.
385) and his analysis of the same argument in Ruggie (2007, pp. 819, 826). See also
the comments of Duruigbo (2008, pp. 50, 74); see also Duruigbo’s list of arguments for
and against extending liability for MNCs 64ff. Backer (2006, pp. 293, 378–84) states
that it could cause end-running by corporations.
438 Special Representative Report (2008) at paras 8–9, 17.
439 Special Representative Report (2008) at paras 9, 17.
440 Special Representative Report (2008) at para. 50. See Backer (2007, p. 1784)
on the diminished role of states in international relations.
are not prevented from doing so, once certain basic requirements are met.441
Moreover, it is confirmed that states have a duty to provide protection against
human rights abuses that affect persons in their territories or jurisdictions,
albeit that they may decide what measures are appropriate for complying with
these duties.442 Yet, the Special Representative laments that states do not find
the correct mix of policy measures in order to protect human rights against
infringement by MNCs.443 Much can be done to strengthen a corporate culture
that is favourable to human rights, for instance by considering it in determin-
ing criminal liability; moreover government policies must be aligned to ensure
that they are aimed at preventing human rights abuses by business.444 The
Special Representative also proposes a network to give guidance to states that,
in many ways, mirrors the engagement methodologies of the GC.445
Next, the Special Representative is at pains to avoid saying that corpora-
tions have or should have obligations in international law. He merely refers to
their ‘responsibilities’ to respect human rights.446 These responsibilities exist
independently from and do not merely mirror the responsibilities of states.447
The responsibility to respect human rights is a ‘baseline responsibility’.448 To
respect rights means not to infringe on the rights of others, that is, to do no
harm.449 Not doing harm is not the same as being passive.450 What is required
is due diligence. This concept describes the steps that a corporation must take
to become aware of and address human rights impacts.451 The Special
Representative emphasizes the importance of having human rights policies,
integration of policies, embedding of respect for human rights452 and the role
441 Special Representative Report (2008) at par. 19; Special Representative

Report (2007) at par. 15.
442 Special Representative Report (2008) at paras 18, 21; A/HRC/4/35/Add.1;
Special Representative Report (2007) at paras 10–14, 16, emphazing that states often
rely on soft law, 18.
443 Special Representative Report (2008) at paras 22, 27; Special Representative
Report (2007) at paras 16–17, see also addenda 1 and 2.
444 Special Representative Report (2008) at paras 29–42; Special Representative
Report (2007) at par. 28.
446 Special Representative Report (2008) at para. 23 mentions that this responsi-
bility is recognized in soft law instruments. See on duties under international law
Special Representative Report (2007) at paras 19–23, 33–44.
447 Special Representative Report (2008) at paras 53, 54.
448 Special Representative Report (2008) at paras 24, 54, 55.
451 Special Representative Report (2006) at paras 76–8; Special Representative
Report (2008) at paras 25, 56–64.
which the GC can play in taking this process forward.453 The corporate
responsibility to respect human rights includes avoiding complicity in human
rights abuses. It is not possible to define complicity clearly, but there is an
obvious relationship between complicity and due diligence. Corporations can
avoid complicity by employing the due diligence process.454
Finally, the Special Representative considers access to remedies and griev-
ance mechanisms. The current patchwork of mechanisms is incomplete and
flawed. It must be improved in its parts and as a whole.455 As part of a state’s
duty to guard human rights it must establish effective grievance mechanisms.
Treaty bodies increasingly recommend that states investigate and punish
human rights abuses and provide redress when it affects persons within the
jurisdiction.456 These state-based mechanisms may be judicial or non-judicial.
Judicial mechanisms are often under-equipped, especially when it comes to
claim for redress in the home country of a corporation, where that harm was
suffered abroad. The Special Representative proposes that states should
strengthen judicial capacity to hear complaints against corporations that oper-
ate or are based in their territories.457 Non-judicial mechanisms can involve
state-sponsored mediation services or national human rights institutions. Some
proposals for improving the effectiveness of these mechanisms are made.458 A
list of requirements which non-judicial grievance mechanisms should meet in
order to be credible and effective is given.459 The benefits and flaws of non-
state grievance procedures established by corporations, multi-stakeholder
networks or industry initiatives and financiers are then investigated.460
Ultimately, two proposals are made for the improvement of all grievance
and enforcement procedures. Lack of knowledge about the range of remedies
can be improved by means of education.461 Intended and unintended limita-
tions in the competence and coverage of mechanisms should be addressed by
appointing a global ombudsman, although clear requirements will have to be
met before such a proposal can be implemented effectively.462
The Special Representative’s views can be subjected to a number of criti-
cisms. He has been attacked from some quarters for not being bullish enough

454 See Special Representative Report (2008) at paras 73–81; McLoughlin (2007,
p. 160). See also on complicity Special Representative Report (2007) at paras 31–2.
458 Special Representative Report (2008) at paras 84–5, 96–9.
about the obligations of MNCs to respect human rights and for his hostility
towards the Norms.463 His observations about the ‘responsibilities’ of corpo-
rations involve a careful play with words. Moreover, few of the real difficul-
ties that exist in this area of law are decisively and conclusively resolved in his
reports. His failure to answer the question as to whether home states have a
duty to protect human rights against abuses committed abroad by locally regis-
tered corporations is understandable but problematic. His proposal for a global
ombudsman is unlikely to succeed.
Yet, his approach also has various strengths. His views seem to be quite
balanced and are devoid of obvious and strong ideological preferences. They
represent respect for the perspectives of corporations as well as those that are
affected by their actions. He makes a number of highly innovative and useful
proposals and observations while avoiding some of the pitfalls of his predeces-
sors. His emphasis on embedding respect for human rights in corporations fits
well with the approach of CSR and the GC. The greatest strength of his work
is that he proposes a comprehensive and creative framework by which the
activities of MNCs can be addressed internationally. His proposals require a
long-term strategy for promoting human rights against abuses by MNCs.464 For
those who impatiently try to provide protection against corporate human rights
abuses this may be difficult to stomach, but there appear to be few short-cuts.
6.2.2 Self-regulation by MNCs465

It has become commonplace for MNCs to have codes of conduct and ethics.466
These documents are central to ensuring the social responsibility of MNCs.467
463 See Letter to Professor John Ruggie of 25 October 2007 (final version) and
his response, Letter of John Ruggie to Julieta Rossi, Director ESCR-Net of 15 October
2007, Misereor & Global Policy Forum, Problematic Pragmatism: The Ruggie Report
2008: Background, Analysis, Perspectives (June 2008), to which Ruggie responded in
a letter dated 2 June 2008. All are available at www.business-humanrights.org except
the letter of 25 October 2007 which can be found at www.escr-net.org (both were
accessed on 10 May 2009). See also above, fn. 433 for the criticisms of one of the
drafters, David Weissbrodt.
465 Special Representative Report (2007) at par. 63 expressly does not regard this
as a form of soft law. See Backer (2007, p. 1747) on the effects of globalization on the
importance of self-regulation although he probably overstates the case. He refers to
codes as a ‘system of law developing side-by-side with traditional law’.
466 Special Representative Report (2006) at paras 31–8; Mensch (2006, p. 251);
Backer (2007, pp. 1752–6). See Ratner (2001, p. 532) and Redmond (2003, pp. 87–8)
on the origins of these codes. See the description of Backer (2008b, pp. 508 ff.) of the
code of the MNC GAP.
467 Broader networks may promote these codes in dynamic ways, see Backer
(2007, pp. 1780–82).
Corporations often make considerable investments in connecting their brands

and names to compliance with such codes and this will serve as a strong incen-
tive for them to comply with their codes.468 Codes will help to create aware-
ness of the type of conduct that is expected of corporations.469 They will do
much to embed social responsibility in corporations.470 Drafters of these codes
will have experience in the areas of business of corporations to which they
apply and they will be able to address particular problematic situations unique
to particular types of businesses. These codes are easier to get off the ground
than more formal types of soft and hard law. Moreover, the standards in these
codes are often taken from recognized soft law instruments such as the Global
Compact or from other codes. This enhances the status of the borrowed norms
and promotes greater consistency.471 Accordingly, codes will help to establish
the types of standards around which stronger law can coalesce.472
Nevertheless, codes are not the panacea for all problems concerning global
MNCs.473 Not all MNCs will have codes of conduct, while some have ones that
are merely superficially aimed at improving their images and brands.474
Although codes sometimes refer to other recognized systems of norms, the
multiplicity of codes creates an impenetrable variety of norms which are some-
times of doubtful quality. Cross-referencing, as described earlier, apparently
does not sufficiently counter these centrifugal forces.475 Even with the best will
in the world MNCs will be constrained by the markets in their attempts to be
socially responsible. If investors, consumers or other stakeholders are weak or
not interested in compliance with a code, it is unlikely to serve as a constraint on
a corporation.476 Mechanisms will have to be created to ensure that code provi-
sions meet certain basic requirements477 and that proper organizational imple-
mentation, grievance, monitoring and reporting procedures are put in place.
Some or all of these mechanisms are frequently absent or ineffective.478
468 Redmond (2003, pp. 90–91).

469 Ratner (2001, p. 532).
470 Tavis (2002, pp. 523 ff.); Ratner (2001, p. 531).
471 Backer (2007, pp. 1754–5).
472 Ratner (2001, p. 533).
473 Redmond (2003, pp. 91–5); Backer (2008a) at fn. 106.
474 Tavis (2002, pp. 507, 540–41). US courts have also accepted that tort liability
can be restricted if corporations have proper monitoring systems in place.
475 Ratner (2001, p. 532).
476 See Backer (2007, pp. 1759–60) who describes stakeholders as essentially
weak but regards the provision of information as critical. See on the disinterest of
consumers in social responsibility: Backer (2008, pp. 631–2).
477 See on the difficulties regarding the vagueness of codes Backer (2008a, pp.
612 ff.).
478 Special Representative Report (2008) at paras 93–5. See Mensch (2006, p.
266); Ratner (2001, p. 532).
The logical extension of codes for particular corporations is statements or

codes of alliances of corporations. Some important examples can be
mentioned.479 The Caux Round Table (CRT) was founded by executives of
corporations in Europe, Japan and North America. They published the Caux
Round Table Principles for Business, which have been implemented by a large
number of corporations. These principles require respect for all stakeholders,
the letter and spirit of the law as well as the environment.480 Furthermore,
there are several initiatives that cater for specific industries.481 The
International Council of Toy Industries (ICTI) has national toy trade associa-
tions and their affiliates as its members and it has produced the Code of
Business Practice. It focuses on workplace and labour standards.482
Worldwide Responsible Accredited Production (WRAP) is an industry initia-
tive in the clothing sector composed of industry associations and it provides
standards for factories in the sector.483 The Electronic Industry Code of
Conduct (EICC) is a coalition of firms in the electronics industry, including
many of the major names. It has produced a code of conduct that concerns
labour, health and safety and employment standards with which its members
must comply.484 The Equator Principles are the result of an industry initiative
by financial institutions involved in project finance whereby members agree
not to provide finance to corporations that do not comply with its principles.
The principles incorporate the Performance Standards on Social and
Environmental Sustainability of the IFC.485 Finally, the International Council
479 See Mensch (2006, pp. 252–3) who also mentions Responsible Care, see their
website, www.responsiblecare-us.com, accessed 8 May 2009; see also Blair et al.
(2008, pp. 339 ff.) on this initiative; Redmond (2003, p. 88); OECD Directorate for
Financial, Fiscal and Enterprise Affairs, Codes of Conduct – an Expanded Review of
their Contents TD/TC/WP(99)56/final (May 2001), available at http://appli1.oecd.org/
olis/1999doc.nsf/LinkTo/td-tc-wp(99)56-final, accessed 7 June 2009; OECD,
Corporate Responsibility: Private Initiative and Public Goals (2001), available at
www.oecd.org.dataoecd/46/36/2075173.pdf, accessed 7 June 2009; Backer (2008b, p.
511).
480 Tavis (2002, pp. 507–8). It has also produced the Principles for Responsible
Globalization, which are addressed at governments. See generally the Caux Round
Table website at www.cauxroundtable.org, accessed 3 May 2009.
481 Special Representative Report (2006) addendum 4.
482 See the International Council of Toy Industries website, at www.toy-icti.org,
accessed 4 May 2009. See also the Code of Conduct subscribed to by member associ-
ations that is aimed at consumer protection.
483 Worldwide Responsible Accredited Production website, at www.wrapap-
parel.org, accessed 4 May 2009. See Blair et al. (2008, pp. 340–41).
484 Electronic Industry Code of Conduct website, at www.eicc.info, accessed 4
May 2009.
485 The Equator Principles website, at www.equator-principles.com, accessed 4
May 2009; see above, text next to fn. 361ff, for an analysis of the IFC principles.
of Mining and Metals (ICMM) is a CEO-led organization that represents many

of the major mining and metals corporations as well as regional and national
commodity associations who commit to conform to its Sustainable
Development Framework. The framework is based on ten principles that
concern a wide range of issues.486 This initiative and the Equator Principles
also include the protection of minority and cultural rights and require commu-
nity consultations and impact assessments.487 Only the ICMM and the EICC
prohibit bribery in their codes.488
These types of codes will extend the benefits of corporate codes. They will
create greater uniformity when they are directly supported and are used for
cross-referencing. The pressures on corporations to comply with them are
stronger than in the case of individual corporate codes of conduct.
Corporations have an incentive to monitor the behaviour of their competitors
to ensure that they compete on an equal playing field. However, industry codes
may be open to free riding by firms who benefit from the improved image of
an industry without subscribing to the industry code.489 Furthermore, enforce-
ment mechanisms remain generally weak. Of the initiatives mentioned only
WRAP and the ICTI allow for factories to apply for certification which will
only be given and maintained following an audit,490 while the ICMM provides
for external assurance of compliance.491 All require some form of reporting
but only the Equator Principles and ICMM require public reporting.492 The
EICC and the Equator Principles explicitly require that grievance procedures
must be set up.493
Governments could move to strengthen codes but their contributions have
thus far been indirect.494 In 2000 Australian Senator Vicky Bourne failed to
promote successfully the Corporate Code of Conduct Bill.495 The Bill aimed
to impose social responsibility standards on Australian corporations operating
486 International Council of Mining and Metals website, at www.icmm.com,

489 Redmond (2003, p. 94).
490 See Special Representative Report (2007) addendum 4 par. 151, the ICM is
developing an external verification mechanism.
491 The Special Representative Report (2007) at par. 154 mentions that this mech-
anism was being developed and it became effective in 2008.
492 See Special Representative Report (2007) at par. 153. The ICMM and Equator
require compliance with the Global Reporting Initiative Guidelines, while the others
have their own standards, par. 152.
493 See Special Representative Report (2007) at par. 154.
494 See also below 6.2.4 on the role of states in governance networks.
495 Available at www.aph/gov.au, accessed 12 December 2008. See McLoughlin
(2007, pp. 171–2).
abroad. In the United States Congresswoman Cynthia McKinney lost her seat
before she could complete the promotion of her Corporate Code of Conduct
Act for the United States. It would have required US MNCs to have codes of
conduct and would have imposed liability for breaches of such codes.496
6.2.3 Non-governmental organizations

Non-governmental organizations (NGOs) operate on both a local and global level
to promote socially responsible conduct of corporations.497 The establishment of
a global civil society takes globalization beyond mere economic globalization.
Globalization creates opportunities for NGOs because of the weakening of states
and the increased social emphasis on the global dimension.498
In governance networks the most important sanctioning mechanism is that
stakeholders such as local communities and employees, but especially
customers and investors, withdraw their support from offending MNCs.
However, several obstacles prevent them from constraining the activities of
MNCs. Those who suffer the most harm are often the weakest. It may be diffi-
cult for stakeholders to co-operate to exert pressure on MNCs that act improp-
erly. Some stakeholders may be reluctant to act when they benefit from the
activities of MNCs even if others are injured. Stakeholders frequently will not
have the type of information that will convince them to exert pressure on
MNCs even if they would have been prepared to do so if they were better
informed.499 NGOs are therefore essential in mobilizing stakeholders and in
engaging with MNCs.500 NGOs can perform a range of functions to constrain
the activities of MNCs, such as reporting abuses, monitoring the activities of
MNCs, setting standards of conduct for MNCs501 and establishing formal and
informal engagements with MNCs or their stakeholders.502 Good examples of
this are the reports which Human Rights Watch has produced to expose human
rights abuses by Enron in India and international oil companies in Nigeria503
and the report of the National Labour Committee that exposed unacceptable
496 Corporate Code of Conduct Act HR 2782 107th Cong (2001), available online
at www.theorator.com/bills107/hr2782.html; see also www.aph.gov.au/senate/
committee/corp_sec_ctte/reports.htm, both accessed on 14 December 2008.
497 See generally Bunn (2004, p. 1265).
498 Above, text next to fn. 27 ff.
499 McLoughlin (2007, p. 157).
500 Special Representative Report (2006) at paras 14–16 where the reasons for
this are discussed. For the dynamic functioning of networks, see Backer (2007, pp.
1780–82); Backer (2008b, pp. 519–20).
501 Backer (2007, pp. 1756–8). See the standards of CERES below, text next fn.
515.
502 See also Dickerson (2004, p. 534) on the role of NGOs.
503 See Ratner (2001, pp. 447, 526–8).
labour practices of suppliers to Wal-Mart.504 NGOs such as Human Rights

Watch have been held up as organizations that interact with MNCs in a
constructive manner.505 Greenpeace now also engages positively with busi-
ness over acceptable environmental business practices.506
Moreover, NGOs, like corporations, may form alliances.507 There are two
major reasons for this. First, it may be more difficult for NGOs to gain legiti-
macy than for some other global actors because of the absence of account-
ability to all but donors and members.508 There is a danger in allowing one
group of unaccountable actors, in the form of NGOs, to oversee the activities
of another, in the form of MNCs.509 Alliances may help NGOs achieve legiti-
macy. Secondly, alliances may help NGOs to perform their functions more
efficiently. Global NGOs may, for instance, join coalitions with local ones to
enhance their authenticity and local footprint, while local ones may partner
with global ones to obtain access to greater resources and skills as well as
global credibility.510
Nevertheless, NGOs are not always effective counterweights to MNCs.511
Some engagements with MNCs are ideological and unnecessarily confronta-
tional. Some NGOs are criticized for falling prey to a visceral anti-MNC bias that
arouses suspicion on the part of MNCs about the value of the human rights move-
ment in business.512 Although some NGOs or alliances of NGOs will obtain
considerable legitimacy and will be important actors in governance networks,
many will not find acceptance that is universal enough to allow them to serve as
a counterweight to mighty MNCs. Moreover, NGOs struggle to persuade
investors and customers to turn their backs on offending MNCs in a world where
people are information saturated. Hence, attempts by NGOs to have MNCs sanc-
tioned for their improper conduct will seldom succeed. Only a few causes will
receive the type of attention that will force MNCs to alter their behaviour.
504 Backer (2007, pp. 1762–7). See also the description of GAP’s engagement
with NGOs, Backer (2008b, pp. 509 ff.).
505 Ibid.
506 Friedman (2000, p. 208). See also above on the role of NGOs such as the
Jubilee movement, fn. 58.
507 Tavis (2002, pp. 510–11) on the legitimacy of these organizations.
508 Ratner (2001, p. 533).
509 See Backer (2006, pp. 386–8) on the role of NGOs in terms of the Norms as
initially envisaged.
510 See Tavis above, fn. 507.
511 See also Blair et al. (2008, p. 347) on the argument that they may undermine
regulation because governments cede regulatory powers to them.
512 Ratner (2001, p. 533). Friedman (2000, p. 355) states that it is important to
determine how globalization can be used rather than how it can be torn down.
6.2.4 Tightly knit multi-stakeholder networks

It already should be apparent from the introduction to this section, the descrip-
tion of the UN Global Compact and the analysis of self-regulation and NGOs,
that multi-stakeholder networks are central to transnational regulation of
MNCs.513 In this section some of the tightly knit and formalized multi-stake-
holder networks will be described. A multitude of these networks perform an
extremely wide range of tasks in the global arena and representative examples
will have to suffice.514
Some networks do not involve MNCs directly but have NGOs and other
stakeholders, such as investors, as major actors in order to strengthen legiti-
macy and the ability to condemn improper behaviour. CERES is a coalition
between investors and environmental or public interest organizations. It is the
successor to the Coalition for Environmentally Responsible Economics. It
drafted the CERES Principles (formerly known as the Valdez Principles) in
1999 in response to the Exxon-Valdez oil spill disaster. It creates a broad front
for engaging with business about environmental issues and it gets corporations
to endorse its Principles.515
Although MNCs participate in the Extractive Industries Transparency
Initiative (EITI), its outstanding feature is that it harnesses state power and
MNCs can fall within its ambit without their consent. The EITI was
announced by former British Prime Minister Tony Blair at the World Summit
for Sustainable Development in Johannesburg in October 2002. Its aim is to
achieve revenue transparency in the extractive industry. If a country applies to
become EITI compliant it must go through a rigorous process of validation.
But once a country is recognized to be EITI compliant, all payments made by
relevant corporations to the government must be disclosed by them, while
countries must disclose all revenues received. Other countries, corporations in
the extractive industry, NGOs and international organizations who are not
513 Special Representative Report (2007) at par. 5, although the definitions used
for different networks will sometimes differ from those in the report.
514 Apart from those initiatives mentioned here see also the Ethical Trading
Initiative (ETI) which is a multi-stakeholder initiative requiring participating compa-
nies in the UK to comply with a base code. It does not monitor compliance but requires
reporting and it engages with companies that do not comply, see www.ethicaltrade.org,
accessed 14 November 2008, and see Special Representative Report (2007) addendum
4. The Global Sullivan Principles have their origin in the anti-apartheid movement but
were drafted by a Core Committee of business leaders in consultation with the Rev.
Leon H. Sullivan. They were launched in November 1999 at a special ceremony at the
UN, attended by the Secretary-General, see www.thesullivanfoundation.org/gsp/
default.asp, accessed 14 November 2008, and Mensch (2006, p. 254). See also gener-
ally Blair et al. (2008, p. 342).
515 Coalition for Environmentally Responsible Economics, at www.ceres.org,
accessed 4 May 2009; Mensch (2006, pp. 253–4); Zondorak (1991, p. 457).
bound in this manner participate in the EITI by endorsing it and providing

oversight and support for its activities.516
In other networks, countries participate as actors but MNCs and their
consent to participate are central to the functioning of the networks. The
Voluntary Principles on Security and Human Rights (VPs) involve countries,
corporations and NGOs. It sets out principles that provide practical guidance
to corporations in the extractive industry when providing security for their
businesses. In developing countries these corporations often make use of
private security forces or formal (public) security forces. These forces may
pose a danger to neighbouring communities. The initiative is aimed at address-
ing these forms of harm. Participants must meet certain participation criteria.
A new participant will only be accepted with the consent of all existing
members. Every participant must report on its compliance with and support for
the principles on an annual basis and reports must be submitted to the Steering
Committee. The VPs provide for robust but constructive engagement between
members. Participants may raise concerns regarding the compliance of other
participants with the VPs. If certain requirements are met such a concern may
then be referred to a plenary meeting of participants. The plenary meeting may
then decide what action to take (in the case of countries a super majority of 66
per cent will be required for these decisions, while an ordinary majority will
suffice for other participants). The plenary meeting must make its decision for
the purpose of deepening the VPs. If the participant at whom the decision is
aimed categorically fails to implement it, it may be expelled but only with the
consent of all remaining members.517
Many networks have MNCs and NGOs as major participants. The Fair
Labor Association (FLA) grew out of the Apparel Industry Partnership, which
was intended to end sweatshop conditions in the clothing industry. It is an
alliance between MNCs and advocacy groups. The Partnership issued a Code
of Conduct. Corporations who join the FLA must comply with the Code and
monitor compliance, submit to independent monitoring and report on condi-
tions in the factories of suppliers. Independent monitoring takes the form of
audits and the results of these audits are published. The FLA requires remedial
action where infringements have occurred and it monitors such actions. The
516 Extractive Industries Transparency Initiative website, at www.eitrans-

parency.org, accessed 6 May 2009; Special Representative Report (2007) at para. 45.
See the discussion in the report of the Kimberley Process paras 52, 54, 57–9 and also
Special Representative Report (2006) at par. 47, see www.kimberleyprocess.com,
accessed 2 June 2009. States also actively participate in this initiative to prevent the
trade in blood diamonds.
517 Voluntary Principles on Security and Human Rights website, at www.volun-
taryprinciples.org, accessed 7 May 2009; Special Representative Report (2006) at paras
48–51.
FLA has concluded that monitoring is not enough and it has developed strate-
gies to build capacity that will ensure compliance with acceptable practices in
developing countries.518
Several networks are focused on establishing standards for socially respon-
sible conduct and certifying compliance with those standards.519 The Forest
Stewardship Council (FSC) comprises corporations and representatives in the
forestry profession and timber trade, environmental and social groups and
indigenous community organizations. It sets principles and criteria for forest
management. The principles concern environmental, labour and human rights
issues. The FSC provides for the certification of compliant participants by
accredited, independent certification organizations. Such participants may
then label products to show that they have been produced or handled by
compliant firms. Many large retailers in the US support the FSC and it has
even gained the attention of the investment community.520
Social Accountability International is an NGO that has created a social respon-
sibility standard, the Social Accountability or SA 8000. The standard was devel-
oped consensually by representatives of trade unions, human rights organizations,
academia, retailers, manufacturers, contractors, and consulting, accounting, and
certification firms. It focuses on labour standards. Certification for compliance
with the standard is given on the basis of an audit done by accredited auditors.
Certified firms are subject to semi-annual reviews and revisits.521
The International Organization for Standardization (ISO) develops and
publishes international standards. Its members are the standards bodies of
states and they enforce compliance standards. It therefore is slightly different
from the other multi-stakeholder networks listed here. Many of its members
are state institutions but it is not an international institution in the strict sense
as some of these members are private organizations set up by national part-
nerships of industrial organizations, while business plays an important and
direct role in standard-setting. It has set highly authoritative environmental
and quality management systems standards and is currently involved in setting
a social responsibility standard ISO 26000.522
518 Fair Labor Association website, at www.fairlabor.org, accessed 7 May 2009;

Special Representative Report (2006) at paras 43–4 and Addendum 4; Special
Representative Report (2007) at paras 79–80; Tavis (2002, pp. 508, 539); Friedman
(2000, pp. 207–8); Ratner (2001, pp. 529–30).
519 See also the Kimberley Process above, fn. 516.
520 Forest Stewardship Council website, at www.fsc.org, accessed 8 May 2009;
Branson (2002b, p. 137); Blair et al. (2008, p. 343). See also on other social labelling
schemes: Ratner (2001, p. 532); Mensch (2006, p. 253).
521 Social Accountability International website, at www.sai-int.org, accessed 8
May 2009; Special Representative Report (2006) addenda 3 and 4.
522 See the International Organization for Standarization website, at
This brief survey illustrates how the benefits of governance networks can
be strengthened if the different types of actors in them organize their interac-
tions formally.523 These tightly knit networks allow for direct engagement by
parties who are concerned with the activities of MNCs. They enable MNCs
and other stakeholders to learn from one another and benchmark their actions
against best practice. Where other stakeholders, such as NGOs, participate in
establishing a network with MNCs, fine balances must be struck that do not
undermine the legitimacy or interests of those participants or the ability of
MNCs to make profits. The need for the participation of NGOs and other
participants in order to legitimate a network means that they cannot simply be
pushed around by MNCs. As a result, the norms laid down by these networks
generally are quite strict. With the exception perhaps of the Voluntary
Principles, they provide for expansive monitoring, verification and enforce-
ment procedures. Moreover, the centralization of norm creation establishes a
more consistent and intelligible regulatory framework. However, these
networks also suffer from many of the flaws that have already been high-
lighted in the context of self-regulation and NGOs. MNCs will be able to
capture some of these networks. Despite some centralization, the multitude of
frameworks still creates fragmentation. Most networks are still voluntary and
the pressure to participate in them will sometimes remain weak.524
6.2.5 Conclusions regarding the restraining of the activities of MNCs

outside traditional law
The analysis of existing governance networks shows that MNCs do not oper-
ate in an unregulated global environment, even if they may be subject to very
little by way of formal law.525 These networks have several advantages over
hard law. They are effective precisely because they are easier to get off the
ground, are tailor-made for specific purposes and can be applied more flexibly
than traditional legal rules.526
Furthermore, it seems that it will be impossible to replace these networks
with hard law, even if it were acknowledged that they always produce second-
best results and that they ought to be so replaced. National law will remain an
imperfect tool for regulating MNCs, while it seems unlikely that a compre-
www.iso.org/iso, accessed 3 May 2009. See Blair et al. (2008, pp. 329 ff., 343–4) on
ISO 8000 and 9000. See Mayer (2002, p. 644). See also Tavis (2002, p. 507) on the role
of private entities in standard-setting. See above, fn. 169, on sustainability reports and
the Global Reporting Initiative.
524 Backer (2006, p. 318) and the complaints about volunteerism.
526 See generally on the value of soft law, Weissbrodt (2008, p. 389) and Ruggie
(2007, pp. 819, 839–40).
hensive international legal regime for this purpose will be established any time
soon. Developed nations are loath to give up their economic and political
power and developing nations will regard the imposition of obligatory norms
as a form of imperialism.527 The political compromises that will have to be
made to develop laws for this purpose may create more problems than solu-
tions. The failure of the Norms shows that attempts to create international
norms before the political and social environment is ready do not take efforts
to regulate MNCs forward but rather set them back.
However, as governance networks suffer from many flaws and are not self-
sufficient, some situations will require the centralized and formal weight of
hard law. The real trick will be to determine the situations in which governance
networks should be replaced by hard law and to establish how these networks
can be supported by hard law. In this process, care must be taken to ensure that
valuable elements of soft law and governance networks are not destroyed by
inappropriate, rigid hard laws.528 Law can learn much from the social experi-
ments that have been conducted through these initiatives. Ideally, there should
be fluidity between hard and soft law initiatives.529
A modest proposal is to create international rules that would improve the
information that MNCs provide about the impact of their activities and to
provide for institutions that monitor MNCs on the basis of such information,
without trying to lay down specific international norms. The governance
networks would then have to distil the information and mobilize for corrective
actions. The difficulties of establishing specific norms would be side-stepped.
This approach relies heavily on the ability of markets to discount and balance
the perspectives of different stakeholders about acceptable behaviour and the
ability of other actors such as states and NGOs to ensure that those markets
function effectively. It appears that markets can achieve this to some extent.530
However, this type of strategy has its limits. Perhaps it should be perceived as
one of the starting points in the development of a more comprehensive regu-
latory regime for MNCs.531 Transnational efforts to establish critical mass on
norms and enforcement mechanisms should continue alongside developments
such as this. The proposals of the Special Representative of the UN Secretary-
General, John Ruggie, are invaluable because they start to develop realistic
frameworks for taking the broader regulation of MNCs further.
527 Backer (2008a, pp. 618–20).

528 See Backer (2007, p. 1777) on the value of dispersion of power.
529 Backer (2007, p. 1761) speaks of the migration of norms. Although this
migration will be difficult, see Backer (2008a, p. 608).
530 Backer (2008a). See especially his reliance on binary economics pp. 606–7.
531 See Backer (2008a, p. 643) on the development of values.
7 CONCLUSION
Although increased globalization is unlikely to give birth to a major conver-
gence between the laws of different states or the establishment of strong inter-
national rules, it will probably promote a conversation between the local rules
and the global initiatives that constrain the conduct of corporations. There is
considerable tension between attempts to regulate MNCs in states and supra-
territorially.532 Backer, referring to the position of the United States, distin-
guishes the national corporate law discourse focused on economics, and to
some extent politics, where corporate law is regarded as a form of private
organization, and the transnational and international corporate law discourse
that is focused on social responsibilities and human rights.
For people in these fields of law and policy, the traditional forms of nation-centered
normative corporate regulatory systems, centered on the economics of shareholder
wealth maximization, hold no special magic. Instead of economics and private law,
public law and public accountability provide a better model for corporate regula-
tion, which can be articulated as policy, and eventually as law. At this level, the
domestic law framing of the issue of corporate social responsibility – the extent to
which the corporation may or must take into account the effects of its actions on
others, and the fundamental limitation of ultimate corporate purpose to sharehold-
ers – is increasingly rejected. State governance and corporate governance theory
conflate in norm making outside the nation-state.533
Backer proposes that the ‘power to control the authoritative discourse over
corporate characteristics and responsibilities could be wrested from the insti-
tutions controlling the national discourse’.534 This discourse has thus far given
birth mainly to soft law norms. The national discourse will remain of impor-
tance to corporate law, but the global perspective requires a rethink of national
approaches to corporate law. The focus on human rights and the social impact
of corporations on the global stage illustrates that the contractarian approach
to corporations is based on gross oversimplifications. MNCs have power and
therefore must be submitted to public law regulation that will in some ways
mirror regulation of state power.535 In countries with strong political institu-
tions the contractarian approach could perhaps make some sense because their
activities will be constrained outside of corporate law. But MNCs also operate
in environments where institutions are weak. Here the constraints imposed by
532 Backer (2008b, p. 508).

533 Backer (2006, pp. 305–8); Backer (2008, pp. 601–2).
534 Backer (2006, pp. 358 ff.); Backer (2008, pp. 505–6).
535 Backer (2006, pp. 307, 320, 333, 334, 340, 357 ff.). See Bottomley (1997, pp.
277, 313) and his idea of corporate constitutionalism.
corporate governance structures become critical. International human rights

and national corporate social responsibility movements meet at this juncture in
their attempts to embed values in corporations.
Perhaps globalization, beyond economic globalization, will ultimately have
the unexpected result of clinching the indeterminate debate about the role of
corporations and corporate law in favour of greater corporate social responsi-
bility. The forging of ties between human rights law and corporate law,
promoted on an international level, cannot ignore economic efficiency.
However, the global perspective suggests that a careful balance of the interests
of a wide range of stakeholders in corporations is required in corporate law.
Moreover, it is not obvious that such a shift in corporate law will be inefficient.
One of the major reasons for the current economic crisis was a bizarre focus
on short-term gain. This approach to corporations and corporate law may
promote the sustainability of the activities of corporations.536
Furthermore, globalization has affected the power of nation states to regu-
late. It has not made states impotent but has undermined their power to make
law. The regulation of corporate law in the globalized world is and will remain
a complex affair.537 Three models for constraining their activities exist.
According to the neo-liberal approach, markets will be sufficient to prevent
abuse of economic power. According to the moral restraint model, voluntary
guidelines for the behaviour of MNCs are provided and those who have
submitted to the guidelines are then scrutinized. According to the control
model, the activities of MNCs must be submitted to legal constraints.538
The first model clearly illustrates that markets are central to globalization
and the benefits that it has brought. Yet, it focuses too much on economic glob-
alization and a naive belief in the power of markets to control power. It would
appear to be more sensible to have other forms of regulation to work in tandem
with markets, to ensure that markets work efficiently but also to assert values
that are regarded as important, even though they may limit market effi-
ciency.539
So, how should such regulation look? It will fall somewhere between the
second and third alternatives enumerated above. Governance networks should
continue to perform a significant role as a regulatory mechanism. But this does
not mean that we should be in denial about the weaknesses of governance
536 See the examples of Mayer (2002, pp. 645–6, 649–51).

537 Backer (2006, p. 294): ‘[r]egulatory power appears to be flowing up from
states to international bodies and out from states to non-public actors’.
538 Ratner (2001, p. 462) on the importance of conceiving of power beyond polit-
ical power, with reference to Strange (1996, pp. 16–43).
539 Backer (2006, pp. 317–19).
networks.540 There is a need to find the right mix of attainable and workable
soft and hard law and to understand how and when soft law should migrate
into hard law. Perhaps developments in the area of corporate law can
contribute to broader attempts in other areas of law that are aimed at under-
standing the concept of soft law and its relationship to hard law.
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May 2009.
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Equator Principles website, at www.equator-principles.com, accessed 4 May 2009.
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2008.
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Fair Labor Association website, at www.fairlabor.org, accessed 7 May 2009.
Financial Accounting Standards Board website, at www.fasb.org, accessed 6 May
2009.
Forest Stewardship Council website, at www.fsc.org, accessed 8 May 2009.

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January 2009.
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PART V
Procedural issues
10. Civil procedure in a globalizing
world
Remco van Rhee
1 INTRODUCTION
At the start of the 21st century, the world’s civil procedural landscape is
diverse. The main origin of diversity can be found in the historical differences
in the approach to civil litigation in the Common Law and Civil Law families
of procedural law.1 However, even within these families the differences have
become considerable, and it has been stated that because of that, the
dichotomy between Civil Law and Common Law may soon have lost much of
its relevance.2 An obvious example of major differences within one family can
be seen when comparing England and Wales (shortly ‘England’ below) and the
United States of America. In England, the jury has nearly disappeared from
civil trials,3 whereas the right to a jury trial is a constitutional right in the US.4
Also, the role of pre-trial discovery (currently known as disclosure in England)
is radically different in these two jurisdictions. Whereas discovery in the US
is extremely extensive, at least from a European perspective,5 stringent limits
have been introduced in England by the Woolf Reforms (1999).6 At the same
time, it seems that occasionally the differences between jurisdictions from
1 For example, van Caenegem (1973) Chapter 2; Van Rhee (2005a).

2 Andrews (2009): ‘This project also shows that a jurisdiction’s historical asso-
ciation with the Common Law or Civil Law tradition is not an immutable genetic
stamp. Arguably, this backward-looking distinction will soon have lost any clear value
in modern procedural structures.’ And also: ‘These differences [between the USA and
English systems, and between the various civil law jurisdictions] make a nonsense of
the glib phrase “Anglo-American procedure” and, especially, of the crude expression
“Civilian procedure”.’ See also Storskrubb (2008, p. 285).
3 Andrews (2003) Nos. 34.08–34.10; Supreme Court Act 1981, Section 69;
Stürner (2005, pp. 201–54) p. 225; Van Rhee (2005b, p. 154).
4 Seventh Amendment of the US Constitution.
5 Burnham (2006) Chapter 7.
6 Woolf (1996) Chapter 12, paras 37 ff., available at http://www.dca.gov.uk/
civil/final/index.htm, last consulted April 2009; Andrews (2003) 26.01–26.128.
343
different families are becoming less pronounced.7 When one compares

modern English civil procedure with the procedure of various continental
European jurisdictions, it appears, for example, that both in England and in
large parts of the continent the judge has become an active case manager in
civil proceedings, albeit in England mainly as regards the formal aspects of
litigation.8 In this respect, England has moved away from the traditional
Common Law approach and in the direction of the European Continent.9
The question may be asked to what extent the study of these differences and
similarities is relevant for a modern lawyer. After all, it is not immediately
evident why civil procedure should be studied from a comparative perspective.
Often, civil procedure is considered to be a purely national branch of the law,
which is partly due to the lex fori rule. This rule implies that, unlike for exam-
ple in various areas of substantive law such as the law of contract, litigants may
not choose the procedural law applicable to their case. Litigants are obliged to
observe the procedural law of the forum where they litigate. This is not surpris-
ing, since the organization of the courts and several of their rules of procedure
are closely linked to issues of the organization of the State and therefore touch
upon matters that often have a constitutional significance.10 Nevertheless, there
has already been some interest in comparative civil procedure for a consider-
able amount of time, especially in Germany and Italy, and currently such inter-
est is on the rise on a worldwide scale.11 This interest is in my opinion to a
certain extent the result of globalization, or at least of ‘internationalization’,
that is, the integration and/or interdependence of economic, political, and
cultural systems, either across the globe (globalization) or on a more local level
(internationalization, for example at the level of the European Community).12
In the present chapter I will discuss three areas where an interest in compar-
ative civil procedure is – at least in part – due to internationalization or glob-
alization:
7 See e.g. Lindblom (1997, pp. 11–46, p. 20).

8 Woolf (1996) Section II; Van Rhee (2008, pp. 11–25).
9 Van Rhee (2003, pp. 217–32). See, for an overview of the major similarities
and differences between the world’s civil procedural systems, ALI/UNIDROIT (2006,
pp. 4–7).
10 Storme (1994, pp. 37–9). See also Storskrubb (2008, p. 22); ALI/UNIDROIT
(2006, pp. xxxii–xxxiii).
11 See for example the various publications of the International Association of
Procedural Law, http://www.uni-regensburg.de/Fakultaeten/Jura/gottwald/iapl/, last
consulted April 2009.
12 I will use the terminology ‘European Community’ in the present text and not
‘European Union’, since most of the issues discussed here are only relevant for the
European Community pillar (i.e. the supra-national pillar) of the European Union, and
not for the second and third pillars (i.e. the intergovernmental pillars).
Civil procedure in a globalizing world 345
• law reform at the national level

• competition between national civil procedural systems
• harmonization of procedural law on an international and a global scale.
2 LAW REFORM AT THE NATIONAL LEVEL

Comparative civil procedure is often popular where attempts are made to
reform a national procedural system. Under these circumstances, foreign
procedural law is closely studied and compared with the existing national
system under scrutiny. In such cases, civil procedural systems that are closely
related to the system in need of reform are especially of interest. When reform-
ing a procedural system, a comparative approach seems wise, since foreign
experiences offer information on the functioning of procedural rules in prac-
tice. Examples may be quoted from the 15th- and 16th-century Low Countries,
where one may observe the adoption of French–Burgundian procedural law,13
and I do not exclude the possibility that there are earlier ones. In more recent
times, examples abound. Reference may be made to examples from the 19th-
and 20th-century Netherlands14 and Belgium.15
One may question whether the interest in comparative civil procedure in
law reform should be viewed as the result of globalization or at least interna-
tionalization. This is, in my view, indeed the case because, as stated, the civil
procedural systems that are used as a source of comparison are usually
systems that are closely related to the system in need of reform. The relation-
ship between the various procedural systems is very often the result of a close
contact, not only in the procedural field but also as regards the economy, poli-
tics and culture. The 15th- and 16th-century Low Countries, for example, were
culturally and linguistically close to their French–Burgundian model. As
regards the 19th-century Netherlands and Belgium, the French legislation
introduced after the annexation of these territories by France was not repealed
after the defeat of the French emperor. Therefore, from a legal point of view
(and, before the defeat of the French emperor at Leipzig, also from the politi-
cal and economic perspective), the Netherlands and Belgium were integrated
into the French system, something that especially in Belgium was reinforced
by the French cultural and linguistic orientation of the elite of that country
during the 19th and a large part of the 20th centuries.
13 Examples from the 16th century may be found in Van Rhee (1997, pp. 313
ff.). See also Van Rhee (2000, pp. 589–611).
14 Jongbloed (2005, pp. 69–95).
15 Heirbaut (2009, pp. 89–117).
The result of the interest in comparative civil procedure in law reform on a

national scale has given rise to a process of spontaneous harmonization, or
rather ‘approximation’, of civil procedural law on an international scale.16
This process can be observed in various parts of the world, at least as regards
aspects of civil procedural law. In this respect, one may refer to the procedural
systems of several Member States of the European Community. As stated,
within the European Community even the divide between Civil Law and
Common Law has become less pronounced in the area of civil procedure. An
example of spontaneous approximation is what may be called the process of
‘deformalization’. Although procedural forms should be adhered to since
formality guarantees justice,17 too much formality may lead to a denial of
justice.18
Another example of spontaneous harmonization is the increase in the case
management powers of the judge in the majority of European jurisdictions.19
This development started at the end of the 19th-century in Austria and affected
England in 1999. The original 19th century idea, expressed in the highly influ-
ential French Code de procédure civile of 1806, was that civil litigation was a
private matter and only of interest to the parties to the lawsuit.20 According to
this Code, the parties were considered to be free in deciding how they would
conduct their case. They could opt for litigating expeditiously or to have their
case move forward at a snail’s pace.21
16 Van Rhee (2003, pp. 217–32). The use of the term ‘approximation’ is based
on the title of the Report of the Storme Group, discussed below (Storme, 1994).
17 Montesquieu (2006) Chapter 1: ‘Les formalités de la justice sont nécessaires
à la liberté.’
18 Montesquieu (2006) Chapter 1: ‘Mais le nombre en pourrait être si grand,
qu’il choquerait le but des lois mêmes qui l’auraient établis.’ See also Van Rhee et al.
(2008), especially the contributions by Cadiet (pp. 271–301) and Asser (pp. 323–33).
19 Van Rhee (2008, pp. 11–25).
20 On the history of the French Code of Civil Procedure, see Wijffels (2008, pp.
5–73).
21 A caveat is necessary here. Franz Klein (1854–1926), the ‘father’ of the 1895
Austrian Code of Civil Procedure, which would herald a new era of civil procedure in
Europe (see below), claimed in the 1890s that even though the French Code of Civil
Procedure did not grant the French judge far-reaching case management powers, such
powers were, in practice, exercised by him without a legal basis in the Code. See Klein
(1891, p. 25): ‘Dem französischen Rechte ist der Richter in Prüfen, Glauben und
Urteilen eine lebendige Person mit zu achtenden intellektuellen und moralischen
Bedürfnissen, nicht ein blutleerer Judicaturapparat, wie sich ihn das gemeine Recht
ausgesonnen hat. Diese so unscheinbare Wahrheit … erklärt, warum in Frankreich freie
Instructionstätigkeit des Richters ohne besondere gesetzliche Anerkennung bestehen,
die allercursorischste Normierung genügen kann.’ That claim echoes an observation
constantly made by French authors themselves writing on civil procedure from the
latter part of the 19th century onwards, though of course verifying the veracity of such
Austria was one of the first post-Napoleonic nations that experienced a

change, due to the ideas of Franz Klein (1854–1926), the father of the Austrian
Code of Civil Procedure.22 Klein’s aim was the realization of the so-called
‘social function’ (Sozialfunktion) of civil litigation. This ‘social function’ may
be viewed as a reaction against the 19th-century liberal ideal of procedure. It
meant that litigation should be considered not only as a means to solve indi-
vidual lawsuits between private litigants but as a phenomenon that affected
society as a whole.23 Civil procedure should serve the public interest
(Wohlfahrtsfunktion), but it had to be viewed from an economic perspective as
well. The economic perspective meant that one should, for example, guard
against civil procedure being used as a means to postpone payment of a debt
or to obtain money at a low interest rate.24
According to the Austrian Code, the judge was given the task to make sure
that court time was used in the right manner. He obtained what would
currently be described as far-reaching case management powers. These
powers were also needed because the parties were only theoretically equal (the
premise of equality lies at the basis of the French Code de procédure civile of
1806). Conducting litigation in an inefficient manner was usually not the result
of a joint decision of the parties, but only of one party who would gain from
protracted litigation.
It took more than a century for these ideas to become generally accepted in
Europe. During the last decades this has occurred at an increasing pace.25 It
comes as no surprise that this development is very pronounced in Western
Europe, given the fact that the States of Western Europe have for a long time
been in close contact with each other, for example within the framework of the
European Community or the European Free Trade Association. It is not
surprising either that the judge’s case management powers are more problem-
atic in the former Eastern Bloc States,26 given their isolation from Western
Europe during the Cold War and their radically different political and
economic make-up at that time.
statements would require extensive research of the French case law and of day-to-day
practice during this period.
22 Oberhammer and Domej (2005, pp. 118–23).
23 Klein asked the following rhetorical question: ‘Sollte das “Processeigentum”
stärker als alles sonstige Privateigentum sein, und muss erst gesagt werden, welches die
öffentlichen Interessen sind, mit denen die uns so selbstverständliche schrankenlose
Disposition über den Processinhalt collidirt, und was sich dann gerade aus der
Eigentumsanalogie ergibt?’, Klein (1891, p. 17).
24 See Fasching (1988, pp. 97 ff.) and van Caenegem (1973, p. 97).
25 Van Rhee (2008, pp. 11–25); Stürner (2005, pp. 226–7).
26 Van Rhee (2005a, p. 23).
Due to the increasing pace of internationalization and globalization, one

may expect spontaneous harmonization as a result of national law reform to
occur on an ever larger scale in the future.
3 COMPETITION BETWEEN NATIONAL SYSTEMS OF

CIVIL PROCEDURE
Apart from an interest in comparative civil procedure in the area of law reform
at the national level, such attention may also be witnessed where States are
contemplating the competitiveness of their national procedural systems on the
international litigation market. Where such attention exists, it is definitely the
result of some form of internationalization or globalization, since without it
there would not be an international litigation market and competition between
jurisdictions. Although it is true that litigants cannot influence the procedural
law applied by the State courts, they can – as stated above – in many cases
decide about the forum where they litigate. As is shown in a study by Stefan
Vogenauer and Chris Hodges (Oxford), businesses have certain preferences in
this respect.27 These preferences may result in businesses avoiding the State
courts altogether, submitting their cases to arbitration or other types of alter-
native dispute resolution. However, if they do not opt for ADR, they can often
choose a particular jurisdiction for litigating their cases. In this way, they indi-
rectly choose the applicable rules of procedural law and, in the study by
Vogenauer and Hodges, it is shown that as regards choices of forum the proce-
dural law applied by the forum is one of the factors that is taken into consid-
eration.28 States who consider it important to attract international litigation
should therefore consider whether their procedural law – either positively or
negatively – affects a choice of forum. Comparative civil procedure is relevant
for these States because comparing a national procedural model with foreign
procedural regimes is indispensable in order to evaluate the strengths and
weaknesses of a particular procedural system in an international context.29
States may be interested in attracting litigation for various reasons. One
reason might be that they want cases that are in one way or another linked to
their own jurisdiction litigated before their national courts. Another reason
27 Vogenauer and Hodges (2010).

28 Vogenauer and Hodges (2010).
29 In a European context, the various reports of the European Commission for
the Efficiency of Justice (CEPEJ) are of interest (http://www.coe.int/T/dghl/
cooperation/cepej/default_en.asp, last consulted 3 June 2009). See Albers (2008, pp.
9–28). See also idem (2009, pp. 57–74).
might be related to attracting businesses. A preference by the international

business community for the courts of a particular State may be held to indicate
that this community regards this State as an attractive place, not only from the
perspective of litigation but also from the perspective of doing business.30
Most likely, businesses that choose the forum of a particular State trust the
proper functioning of the organs of that State in general, that is, not only that
of the courts. Another reason for a State’s interest in attracting international
litigation is that such litigation may be an incentive for the development of the
national legal services market.
One step States may take in improving their competitiveness in the inter-
national litigation market is to change their rules of procedure, both for domes-
tic cases and for international cases. However, this is a very drastic step which
may not be effective, since different litigants may have different preferences.
Another approach is introducing some flexibility in the application of the lex
fori rule, allowing litigants a certain choice in the applicable procedural
regime, for example by allowing them to opt for the application of certain
foreign procedural rules as regards certain aspects of their case. This might not
be as problematic as it may seem, since not all procedural rules are closely
related to the overall procedural model of a country or have constitutional
significance. An example is the rules on the computation of time, but also vari-
ous rules as regards conciliation, the commencement of the proceedings or the
subject-matter of the litigation.31 In my opinion, a distinction should be made
between rules that are closely related either to national substantive law or to
the procedural system or that have constitutional significance – such as those
concerning the available means of recourse against judgments which impact
on judicial organization, that is, a constitutional issue – and rules that can be
viewed in isolation and that do not have such significance. It is unlikely that
States would be willing to subject the former procedural rules to the parties’
preferences. However, the story may be different regarding the latter rules. By
being flexible in this respect, States might offer an attractive and, therefore,
competitive forum for businesses.
30 In this respect the Doing Business Reports of the World Bank are of interest.
Part of the comparison made by the World Bank concerns the national justice systems
of the various economies (181 in total in the 2009 Report). See the chapter on enforc-
ing contracts in the 2009 Report, pp. 49–53 (the report is available at http://www.doing-
business.org/, last consulted June 2009).
31 See, e.g., the various proposals for harmonization in Storme (1994).
4 HARMONIZATION OF PROCEDURAL LAW ON AN

INTERNATIONAL AND A GLOBAL SCALE
One of the major reasons for the recent growth of interest in comparative civil
procedure is the attempts to harmonize civil procedural law in various parts of the
world or even on a global scale. Two such harmonization attempts are the Storme
Report32 and the Transnational Principles of Civil Procedure of the American
Law Institute and Unidroit.33 These initiatives may obviously be classified as the
results of internationalization and globalization, since they are direct conse-
quences of the markets and the citizens of (parts of) the world coming into closer
contact with each other. The Storme Report is the result of such a development
on a European scale, whereas the Transnational Principles are the result of a simi-
lar development in the area of commercial disputes on a worldwide scale.
4.1 The Storme Report: Harmonization on a European Scale
Harmonization and even unification of civil procedural law may be required

for various reasons. Although litigants may, in several cases, opt for a court
with their preferred procedural regime, this is not always possible. Apart from
legislation prescribing the litigants to conduct their lawsuit before the courts
of a specific jurisdiction (for example, where the case concerns immovable
property), a choice of forum may not be feasible for financial reasons. In an
economic area such as the European Community, this may create problems
from the perspective of the four freedoms (free movement of persons, goods,
capital and services). Citizens may, for example, decide to abstain from
purchasing certain goods outside their own jurisdiction because of (perceived)
problems when litigation should become necessary. Additionally, businesses
may be influenced by differences in procedural law in deciding to produce and
market products in the various Member States. The result is a fragmented
market and not the single internal market that is the objective of European
cooperation.34 Additionally, the result is differences as regards access to
justice which within the context of the European Community – or the wider
context of the Council of Europe – may be considered undesirable.35
32 Storme (1994).
33 ALI/UNIDROIT (2006). Another example is the Código Procesal Civil
Modelo para Iberoamérica (1994). The text may be found at the website of the Centro
de Estudios de Justicia de las Americas (http://cejamericas.org/, last consulted April
2009). I will not discuss various initiatives as regards Arbitration and the Hague
Conventions on civil procedure in the present chapter.
34 See Art. 3 European Community Treaty (ECT).
35 Storskrubb (2008, pp. 1–3, 78).
To start with the Council of Europe: due to Article 6 of the European

Convention on Human Rights (ECHR) (which is comparable to Article 14 of
the International Covenant on Civil and Political Rights) and especially the
case law of the European Court of Human Rights, Member States of the
Council must guarantee the observance of some fundamental procedural guar-
antees, in the area of both criminal and civil litigation (obviously, I will only
discuss civil litigation here). Article 6(1) runs as follows:
In the determination of his civil rights and obligations or of any criminal charge
against him, everyone is entitled to a fair and public hearing within a reasonable
time by an independent and impartial tribunal established by law. Judgment shall be
pronounced publicly but the press and public may be excluded from all or part of
the trial in the interest of morals, public order or national security in a democratic
society, where the interests of juveniles or the protection of the private life of the
parties so require, or to the extent strictly necessary in the opinion of the court in
special circumstances where publicity would prejudice the interests of justice.
The case law of the European Court of Human Rights on Article 6 has been
instrumental in laying down the minimum requirements each national proce-
dural regime of the Member States should meet. On the basis of this case law,
it has appeared that Article 6 prescribes the following guarantees:36
1. access to justice37
2. a fair hearing (trial), which includes38
a. the right to adversarial proceedings
b. the right to equality of arms
c. the right to be present at the trial
d. the right to an oral hearing
e. the right to a fair presentation of evidence
f. the right to a reasoned judgment
3. a public hearing, including the public pronouncement of judgment
4. a hearing within a reasonable time
5. a hearing before an independent and impartial tribunal established by law.
Although Article 6 does not necessarily lead to unification as regards proce-

dural rules sensu stricto, some harmonizing (approximating) effects of the
fundamental principles of Article 6 have been witnessed during the last
decades, for example as regards legal aid and other measures increasing access
to justice, the reasonable time requirement, the rise of the oral element in civil
36 See also Andrews (2009, pp. 54–5).

37 Golder v UK, 4451/70, judgment of 21 February 1975.
38 Van Dijk et al. (2006, pp. 578–96).
litigation and the admissibility of the parties as witnesses.39 These effects are
also important within the context of the European Community, since all
Member States are parties to the ECHR and because Article 6 ECHR and the
case law based on it are part of the acquis communautaire40 of the European
Community.41
Even though Article 6 ECHR has had a harmonizing effect, this is not
necessarily the aim of this Article: it only aims at laying down some funda-
mental guarantees. In actual fact, the need for harmonization for a group of 47
European countries42 that are rather diverse may not be felt as urgently as
within the context of an economic entity such as the European Community.
This is not surprising, taking into consideration that even within the European
Community harmonization of procedural law is a controversial issue. In actual
fact, apart from the fundamental procedural principles of Article 6 ECHR that
should be observed in all Member States, the harmonization that has been
achieved in the European Community is only focused on international cases,
leaving purely national cases outside the discussion (see below).
Within the context of the European Community, Article 65 (jo 61) of the
Treaty Establishing the European Community (ECT), introduced by the Treaty
of Amsterdam in 1999, is of utmost importance from a civil procedural point
of view.43 It states that:
39 See also Freudenthal (2007, pp. 269–70).

40 I.e. the total body of European Community law accumulated this far.
41 Art. 6(2) Treaty on European Union (TEU). See also the Charter of
Fundamental Rights of the European Union (Official Journal C 364, 18/12/2000, pp.
1–22), Art. 47: ‘Everyone whose rights and freedoms guaranteed by the law of the
Union are violated has the right to an effective remedy before a tribunal in compliance
with the conditions laid down in this Article. Everyone is entitled to a fair and public
hearing within a reasonable time by an independent and impartial tribunal previously
established by law. Everyone shall have the possibility of being advised, defended and
represented. Legal aid shall be made available to those who lack sufficient resources in
so far as such aid is necessary to ensure effective access to justice.’
42 Nearly all European countries are members of the Council of Europe, with the
exception of Belarus because of this country’s lack of respect for human rights and
democratic principles.
43 The Lisbon Treaty, which aims at amending, amongst other things, the ECT,
but which has not entered into force since it was rejected in an Irish referendum in
2008, introduces a new Article 81 (replacing Article 65) in Chapter 3 on judicial coop-
eration in civil matters:
1. The Union shall develop judicial cooperation in civil matters having cross-border
implications, based on the principle of mutual recognition of judgments and of deci-
sions in extrajudicial cases. Such cooperation may include the adoption of measures for
the approximation of the laws and regulations of the Member States.
2. For the purposes of paragraph 1, the European Parliament and the Council, acting in
accordance with the ordinary legislative procedure, shall adopt measures, particularly
Measures in the field of judicial cooperation in civil matters having cross-border

implications, to be taken in accordance with Article 6744 and in so far as necessary
for the proper functioning of the internal market, shall include:
(a) improving and simplifying:
– the system for cross-border service of judicial and extrajudicial documents;
– cooperation in the taking of evidence;
– the recognition and enforcement of decisions in civil and commercial cases,
including decisions in extrajudicial cases;
(b) promoting the compatibility of the rules applicable in the Member States
concerning the conflict of laws and of jurisdiction;
(c) eliminating obstacles to the good functioning of civil proceedings, if necessary
by promoting the compatibility of the rules on civil procedure applicable in the
Member States.
Many of the subjects mentioned in this Article have subsequently been

addressed in European legislation45 (applicable to all Member States, usually
with the exception of Denmark), by way of either Regulations or Directives.46
when necessary for the proper functioning of the internal market, aimed at ensuring:
(a) the mutual recognition and enforcement between Member States of judgments and
of decisions in extrajudicial cases;
(b) the cross-border service of judicial and extrajudicial documents;
(c) the compatibility of the rules applicable in the Member States concerning conflict
of laws and of jurisdiction;
(d) cooperation in the taking of evidence;
(e) effective access to justice;
(f) the elimination of obstacles to the proper functioning of civil proceedings, if neces-
sary by promoting the compatibility of the rules on civil procedure applicable in the
Member States;
(g) the development of alternative methods of dispute settlement;
(h) support for the training of the judiciary and judicial staff.
3. Notwithstanding paragraph 2, measures concerning family law with cross-border
implications shall be established by the Council, acting in accordance with a special
legislative procedure. The Council shall act unanimously after consulting the European
Parliament. The Council, on a proposal from the Commission, may adopt a decision
determining those aspects of family law with cross-border implications which may be
the subject of acts adopted by the ordinary legislative procedure. The Council shall act
unanimously after consulting the European Parliament. The proposal referred to in the
second subparagraph shall be notified to the national Parliaments. If a national
Parliament makes known its opposition within six months of the date of such notifica-
tion, the decision shall not be adopted. In the absence of opposition, the Council may
adopt the decision.
44 Article 67 ECT lays down the procedure for the adoption of legislation under,
amongst other Articles, Article 65. See Storskrubb (2008, pp. 47–8).
45 I will not discuss the European Judicial Network here, nor judicial training
and some other measures. See Storskrubb (2008, pp. 233 ff.).
46 A Regulation is a legislative act which becomes immediately enforceable as
law in all Member States simultaneously. Regulations can be distinguished from
Directives, which need to be transposed into national law by the Member States.
As regards Article 65 sub a, the following Regulations can be mentioned:
1. Regulation (EC) No. 1393/2007 of the European Parliament and of the

Council of 13 November 2007 on the service in the Member States of
judicial and extrajudicial documents in civil or commercial matters;
2. Council Regulation (EC) No. 1206/2001 of 28 May 2001 on cooperation
between the courts of the Member States in the taking of evidence in civil
or commercial matters;
3. Council Regulation (EC) No. 44/2001 of 22 December 2000 on jurisdic-
tion and the recognition and enforcement of judgments in civil and
commercial matters;
4. Council Regulation (EC) No. 2201/2003 concerning jurisdiction and the
recognition and enforcement of judgments in matrimonial matters and in
matters of parental responsibility;
5. Council Regulation (EC) No. 1346/2000 of 29 May 2000 on insolvency
proceedings;
Council of 21 April 2004 creating a European Enforcement Order for
uncontested claims.
Article 65 sub b deals with the conflict of laws and will not be discussed in
detail here, since the topics that have so far been brought under this heading
are not directly relevant for civil procedural law. The two most important
topics that may be mentioned are a Proposal for a Regulation of the European
Parliament and of the Council on the law applicable to contractual obligations
(Rome I) [COM(2005) 650 final – Not published in the Official Journal] and
the Regulation (EC) No. 864/2007 of the European Parliament and of the
Council of 11 July 2007 on the law applicable to non-contractual obligations
(Rome II).
Article 65 sub c has given rise to the following European legislation:

Council of 11 July 2007, establishing a European small claims procedure;
Council of 12 December 2006, creating a European order for payment
procedure;
Directives may give rise to different national legislative solutions in order to reach the
aim of the Directive. All Regulations and Directives mentioned in this chapter can be
found on the website of the European Union: http://europa.eu/ (last consulted April
2009).
3. Directive 2008/52/EC of the European Parliament and of the Council of

21 May 2008 on certain aspects of mediation in civil and commercial
matters;
4. Council Directive 2003/8/EC of 27 January 2003 to improve access to
justice in cross-border disputes by establishing minimum common rules
relating to legal aid for such disputes.
As stated, the harmonization resulting from the instruments mentioned

above only concerns international cases. This means that purely national cases
continue to be governed by the rules of civil procedure of the Member State
where the case is brought. In my opinion, this is unfortunate, especially since
it would have been possible to interpret Article 65 sub c broadly, in the sense
that it may form the basis of an alignment of the civil procedural laws of the
Member States irrespective of the national or international character of litiga-
tion. After all, it could be claimed that differences between the procedural laws
of the Member States always have cross-border implications, for example in
the sense that businesses may be affected by these differences when deciding
where to produce and market their products. The free movement of persons,
goods, services and capital within the EU and, consequently, the proper func-
tioning of the internal market are affected by the restrictive interpretation. In
my opinion, the differences in civil procedural law can often only be removed
by Community action and not by action at the respective national levels and,
consequently, the principle of subsidiarity of Article 5 ECT does not prevent
the Community from using its powers under Article 65 ECT. Also, the princi-
ple of proportionality mentioned in the same Article 5 does not seem to hinder
Community action. Nevertheless, this interpretation of Article 65 ECT is
currently politically unacceptable for the Member States.47
Although the European approach excludes purely national cases, a debate
on the ‘approximation’ of the national procedural laws of the Member States
of the European Community was launched already in the late 1980s, that is,
before the introduction of Article 65 ECT. The initiative was taken by a work-
ing group chaired by Professor Marcel Storme from Ghent (Belgium). The
report this working group produced does not distinguish between national and
international cases and is aimed at the then 12 Member States of the European
Community. In his introduction to the report, Professor Storme states that
47 Storskrubb (2008, pp. 39 ff., 272–3). The European Small Claims Procedure,
for example, was originally envisaged as also being applicable in purely national
disputes. At a late moment in the drafting process, however, it was decided that it would
only cover international cases, leading to a discrimination as regards purely domestic
cases in jurisdictions where the national rules are less favourable than the European
rules. See Storskrubb (2008, pp. 220–21).
harmonization of civil procedural law is more feasible than harmonization of

other fields of law. The author claims that this is the result of, amongst other
things, the fact that in the area of procedure many of the rules are not interre-
lated with other rules, either procedural or substantive48 (apart from some
procedural rules which are, for example, closely interwoven with substantive
law, such as those concerning marriage and divorce).49 Consequently, an
immediate overall overhaul of the system is not needed and harmonization
may proceed on a piecemeal basis.50
The original idea of the Storme Group was to produce a model code, to be
implemented by way of a Directive.51 However, it was soon realized that there
were still too many differences between the procedural systems of the 12
Member States to make a generally acceptable, all-encompassing proposal
possible. Therefore, the Working Group concentrated on 16 separate issues:
(1) Conciliation, (2) Commencement of the Proceedings, (3) Subject matter of
litigation (pleadings, that is, statements of case), (4) Discovery, (5) Witnesses,
(6) Technology and Proof, (7) Discontinuance, (8) Default, (9) Costs, (10)
Provisional Remedies, (11) Order for Payment, (12) Enforcement, (13)
Astreinte, (14) Computation of time, (15) Nullities and (16) some general
rules concerning judges and judgments (appeal and disqualification of judg-
ments). In the report, the rules as regards some of these issues are very detailed
(for example, commencement of the proceedings), whereas other issues are
regulated in a rather sketchy manner (for example, witnesses). Although the
rules themselves are available in both French and English, the accompanying
explanatory memorandum, comments and recitals are only available in either
French or English (depending on the language skills of the person responsible
for a certain part of the memorandum), which is due to the limited means
available to the Working Group.52
Criticism was soon to come. To mention but one example, in the European
Review of Private Law, Per Henrik Lindblom discussed various issues which
in his opinion showed the weaknesses of the Storme Report.53 He claimed that
the report did not make clear whether it meant to lay down only minimum
requirements or standard rules.54 Professor Lindblom stated that if the report
was meant to formulate standard rules, it might not give rise to an improve-
48 Storme (1994, pp. 53 ff.).

49 Storme (1994, pp. 57–8).
50 Storme (1994, p. 54).
51 Storme (1994, p. 61). For a definition of a Directive, see footnote 46.
52 Storme (1994, pp. 62–3).
53 Lindblom (1997).
54 Lindblom (1997, pp. 32, 45).
ment in countries that have higher quality rules.55 At the same time, the author
held that if only minimum rules were given, it might be questioned whether
this would lead to harmonization or approximation.56 Additionally, Professor
Lindblom observed that several of the rules suggested by the report were
rather general and often did not address the real problems in the area of civil
procedural law. He demonstrated this, amongst other things, by mentioning
that the report contains only one article (Article 5) concerning witnesses, an
article which in his view stated the obvious, since it only lays down that ‘[a]ny
person duly summoned in accordance with the law of a Member State to give
evidence before a court of that State shall be under a duty to appear before that
court and give evidence.’57
Although the criticism may be justified, it should be remembered that the
Storme Report was the first of its kind and, consequently, should not be judged
too harshly. One of its achievements is that it has been a source of inspiration
for other projects, notably a project initiated by the American Law Institute
and later also sponsored by Unidroit, that is, the Principles of Transnational
Civil Procedure.58
4.2 The Principles of Transnational Civil Procedure and

Harmonization on a Worldwide Scale
In the comparative study of civil procedure, the Principles of Transnational

Civil Procedure are of considerable importance. According to one author,
disregarding the Principles ‘might be declared a form of procedural illiter-
acy’.59 They are a major achievement, considering that the majority of
comparatists were of the opinion that harmonization of civil procedure on a
worldwide scale was not possible.60
The initiators of the project, Geoffrey Hazard Jr and Michele Taruffo, orig-
inally intended to draft a code of rules for national courts that would set aside
domestic procedural rules: (1) when litigation between parties from different
States took place or (2) whenever property in one State was the object of liti-
gation by a party from another country. These rules would form a code accept-
able from both the Common Law and the Civil Law perspective.61 In 1997 the
55 Lindblom (1997, p. 45).

56 Lindblom (1997, p. 32).
57 Lindblom (1997, p. 36).
58 ALI/UNIDROIT (2006, p. 3). See for an extensive bibliography on the
Principles: ibidem, pp. 157 ff.
59 Andrews (2009, p. 52).
60 Stürner (2005, p. 203).
61 Stürner (2005, p. 204).
American Law Institute adopted the project62 and in 2000 Unidroit joined.63
This gave rise to a change, since Unidroit did not feel that civil procedure rules
of some detail would be acceptable to different cultures. It was of the opinion
that it was better to develop a set of general Principles.64 Finally, only the
Principles were adopted by the American Law Institute and Unidroit, although
it was felt that the rules represent a possible example of implementation of the
Principles.65
The final draft of the Principles of Transnational Civil Procedure dates from
2004. It was published in 2006 by Cambridge University Press in English and
French.66 The publication also includes a commentary.
According to their drafters, the Principles must be seen as best practices
and a benchmark for national procedures.67 Consequently, they are not neces-
sarily only aimed at international cases, but may also be used within a national
context, for example in national reform projects (see below). They are a blend
of elements from the Civil Law and the Common Law:68 discovery, for exam-
ple, is limited in nature,69 but this is corrected by a liberal approach towards
shifting the burden of proof.70 Additionally, the hearing of the case is concen-
trated, but this does not necessarily mean that there should only be a single
trial.71 The hybrid character of the Principles may also be viewed slightly less
favourably. According to Neil Andrews, ‘[e]verywhere the restraining hand of
the Civil Law is visible and robust Common Law tendencies are curbed.’72
The Principles aim in the first place at transnational commercial litiga-
tion.73 This approach was adopted in order to increase the chances that the
Principles would be acceptable to lawyers from various jurisdictions. After all,
in commercial litigation there is no jury and the existence of the jury in civil
cases is a major issue separating the US from most other jurisdictions. By only
focusing on commercial litigation, the whole subject of the jury could be
62 ALI/UNIDROIT (2006, p. xxxi).

63 ALI/UNIDROIT (2006, p. 4).
64 Stürner (2005, pp. 205–6). On the three types of Principles that may be distin-
guished, see Storskrubb (2008, p. 290).
65 ALI/UNIDROIT (2006, p. 4); Stürner (2005, pp. 205–9, 215).
66 ALI/UNIDROIT (2006).
67 ALI/UNIDROIT (2006, p. xxix).
69 ALI/UNIDROIT (2006) Principle 16.
72 Andrews (2009, p. 53).
73 ALI/UNIDROIT (2006) ‘Scope and Implementation’ (p. 16). The terms
‘transnational’ and ‘commercial’ are not defined precisely. See ALI/UNIDROIT (2006)
Comment P-B and P-C.
excluded from consideration.74 Additionally, it was felt that international

commercial litigation is less subject to national legal traditions than other
types of litigation because the existence of a body of well-developed rules of
commercial arbitration offers a good common starting point.75
Apart from transnational commercial litigation being a field where harmo-
nization is feasible, there are also intrinsic reasons for concentrating on this
area. In the introduction to the Principles we find the following comment:
The explosion in transnational commerce has changed the world forever.

International commerce and investment are increasing at an enormous rate and the
rate of change is continuing to accelerate. The legal procedures applicable to the
global community, however, have not kept pace and are still largely confined to and
limited by individual national jurisdictions.76
Consequently, there is a need for initiatives in this area, since the current situ-
ation is said to diminish international trade and investment. In the opinion of
the drafters, the existing international conventions (Hague Conventions)77 on
civil procedure and related topics are not an answer to the problems, since they
only address aspects of civil litigation (such as commencement and recogni-
tion) and say little about the actual procedure to be followed.78 From this
perspective, they may also be highly relevant from a European Community
perspective, as many of the existing European Regulations on civil procedure
show the same limitations as the Hague Conventions (see above).
Even though the Principles aim at transnational commercial litigation, this
does not mean that they are without use in other fields. On the contrary, they
may, for example, (1) influence the further development of the rules of
national and international arbitration (to which they are themselves
indebted),79 (2) be used by national law reformers as an example of world-
wide accepted guidelines and standards of procedural law,80 and (3) be
consulted by national judges in the interpretation of national procedural rules
and international conventions that are formulated in a way which leaves the
74 ALI/UNIDROIT (2006, p. xxvii); Stürner (2005, pp. 209–10).

75 Stürner (2005, p. 210).
76 ALI/UNIDROIT (2006, p. xxix).
77 See for an overview: http://www.hcch.net/index_en.php?act=text.
display&tid=10#litigation (last consulted May 2009).
78 Hazard et al. (2001, pp. 770–71).
79 ALI/UNIDROIT (2006, pp. 10–12). See also ALI/UNIDROIT (2006)
Comment P-E.
80 ALI/UNIDROIT (2006, pp. 10–11); ibidem, Scope and Implementation (p.
16).
necessary room for judicial interpretation.81 Finally, they may (4) be used as
standards against which foreign judgments and arbitral awards may be
measured when a decision has to be taken as regards their recognition and
enforcement.82
The procedural model suggested by the Principles aims to avoid favouring
national parties in international litigation.83 It is a flexible model, which
accommodates all of the existing national procedural models. Nevertheless,
the Principles suggest a preferred model.84 This model consists of three stages:
the pleading stage (statements of case), an interim stage (scheduling) and a
final stage (main hearing).85 This model is popular in many European coun-
tries such as Germany, England and Spain. Stürner calls it the ‘main hearing
model’.86 The Principles assume an active judge87 and in this respect they take
the German–Austrian model as an example (see above).88 This active stance
of the judge means that the court is also responsible for determining issues of
law, including foreign law.89 On the other hand, the Principles lay down that
the court is never permitted to introduce new facts not previously advanced or
at least briefly mentioned by the parties to litigation.90 It is, however, again the
court’s responsibility to ensure that justice is administered promptly,91 a
responsibility that is to some extent shared with the parties.92 There is no
notice pleading like in the US, which means that the assertion of detailed facts
and the submission of exactly specified means of evidence during the plead-
ing phase is required.93 All contentions of the parties should be considered by
the court.94 The principle of finality is adhered to.95 The Principles do not
follow the American rule as regards costs.96 However, they do recognize the
amicus curiae.97 Appeal is not a new hearing, but limited to re-evaluating the

82 ALI/UNIDROIT (2006) Comment P-A (p. 16); Stürner (2005, pp. 210 ff.).
83 ALI/UNIDROIT (2006, pp. 1–4).
84 Stürner (2005, pp. 223, 226).
86 Stürner (2005, pp. 224–6).
88 Stürner (2005, pp. 226–7).
89 Stürner (2005, p. 228).
90 ALI/UNIDROIT (2006) Principle 10; Stürner (2005, p. 229).
91 ALI/UNIDROIT (2006) Principle 7.1; Stürner (2005, p. 227).
92 ALI/UNIDROIT (2006) Principle 11.2.
93 ALI/UNIDROIT (2006) Principle 11.3; Stürner (2005, p. 233).
96 ALI/UNIDROIT (2006) Principle 25; Stürner (2005, p. 251).
judgment of first instance.98 The Principles discuss sanctions on parties,

lawyers and third persons for failure or refusal to comply with the obligations
concerning the proceeding.99
According to Neil Andrews, several issues are not (sufficiently) addressed
by the Principles. The author mentions (1) pre-action co-ordination of
exchanges between the potential litigants (pre-action protocols as known in
England since the Woolf reforms) and (2) multi-party litigation. Andrews also
states that greater attention could be given to the interplay of mediation and
litigation, costs and funding, evidential privileges and immunities and transna-
tional and protective relief.100 For these and other reasons, the Principles
should not be seen as the final stage in the development of procedural harmo-
nization on a global scale, but as an initiative which will certainly witness vari-
ous follow-ups in the years to come.
5 FINAL REMARKS
The comparative study of civil procedure has gained considerable importance
in the 20th and 21st centuries. Currently, it is a major topic on the international
legal research agenda. This has been demonstrated in the present chapter by
showing the importance of comparative civil procedure in national reform
projects, and as regards competition between national civil procedure systems
and attempts to harmonize civil procedure on a regional and even global scale.
In each particular case, the impetus for comparative study is internationaliza-
tion or globalization, that is, the integration and/or interdependence of
economic, political, and cultural systems, either across the globe (globaliza-
tion) or on a more local level (internationalization, for example at the level of
the European Community). Without such integration and/or interdependence,
comparative civil procedure would have been intellectually challenging but
not directly relevant for legal practice. As has been demonstrated, this is very
different in our modern, globalizing world, where legal practice demands an
ever-growing attention to the approach to litigation of the various procedural
systems from across the globe.

100 Andrews (2009, p. 57).
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PART VI
Human rights and the environment

11. Fundamental rights in private law:
anchors or goals in a globalizing legal
order?
Siewert Lindenbergh*
1 HUMAN RIGHTS IN PRIVATE LAW

Is a woman who has at the age of 21 signed for possible future debts of her
father liable for these debts, even if this inevitably leads to a heavy lifelong
burden? Can an employer of an employee who appears seven months pregnant
on the day she returns from her parental leave revoke his consent with her
early return? Can a taxi company argue successfully against a passenger who
suffers severe injuries due to a taxi driver’s fault that his liability is limited by
law to an amount of 137 000 euros, while the loss amounts to a tenfold? Does
a property developer who leaves his land unused for years lose his property to
farming neighbours due to limitation?
These questions can be regarded as the most classical issues in private law.
Does a given promise bind under all circumstances? Under which circum-
stances does fraud or deceit lead to annulment of an agreement? Do statutory
rules bind parties in a contract? And what are the consequences of not exer-
cising property rights for a long period of time? All modern jurisdictions, be it
with a common law tradition or a civil law tradition or with a combination of
the two, have private law rules that are, no doubt, able to regulate these issues.
Yet, the above examples have in common that they deal with essential values
for the development of one’s personality: financial independence, equal treat-
ment of women and men, compensation of personal injury, property. Of
course, a modern jurisdiction should, and in most cases will, be able to protect
these interests to a certain extent. However, the development of fundamental
rights in constitutions or human rights treaties may raise the question of
whether the protection provided in private law is adequate and sufficient from
the viewpoint of enforcement of human rights.
* Professor of civil law, Rotterdam Institute for Private Law, Erasmus

University of Rotterdam, the Netherlands.
367
This issue, the influence of fundamental rights in private law, raises funda-
mental questions, not only of a dogmatic and technical nature (How can these
rights, which often stem from a public law tradition, be applied in private law?
What does this mean for the structure of private law?1) but also in a legal-
political sense (What are the implications for the role of the (national) legisla-
tor and of the (national or transnational) judiciary? Can fundamental rights
provide sufficient guidance ex ante to influence the behaviour of private
parties? What does their influence imply for the certainty for private law
parties?) Furthermore, the influence of fundamental rights in private law is by
its nature not a strictly national matter; it is almost by definition a cross-border
issue, related to globalization in several ways.
On the one hand fundamental rights may lead private law to new horizons
and they may provide incentives for more fair solutions in specific cases. They
may very well furnish tools for development of a more just society.2 On the
other hand their influence challenges the structure both of private law and of
the national legal order in relation to its international legal environment.
In theory, private law should be able to apply, protect and enforce funda-
mental rights of private persons adequately, as it is aimed at and suited for
regulation of relationships and conflicts between private parties. The tradi-
tional accent in private law on matters of patrimonial rights and dogmas may
yet be a cause of an underrating of the fundamental rights at stake. In this view
the influence of fundamental rights in private law is merely a matter of a
‘border struggle’ between private law and public law: are fundamental rights
sufficiently recognized in private law?
One can, however, also notice a much more substantial influence of human
rights or fundamental rights on private law. For example in countries such as
South Africa and in parts of Eastern Europe and Latin America, the substan-
tial and global moral pressure of international organizations, such as the
United Nations, and (other) international politics give rise to the question of
whether private law is indeed sufficiently able to accommodate what is neces-
sary for liberalization and for protection of human rights. In this respect the
international public order seems to overwhelm the entire structure and devel-
opment of private law.
It is, however, not only the material influence of the development of protec-
tion of personality interests in public law that has fuelled the debate concern-
ing fundamental rights in private law. A major contributory factor has, at least
in Europe, been the development of multi-level jurisdictions, which has had its
effect on private law as well. The area of private law is thus no longer left to
1 See on this van der Walt (2003, p. 183) and Smits (2003, pp. 57 ff.).
2 See for South Africa, for instance, Mostert (2003, p. 119).
Fundamental rights in private law 369
the exclusive competence of the traditional national civil court, but it is in

Europe influenced substantially by either a national constitutional jurisdiction
(for example the German Bundesverfassungsgericht) and/or by supranational
jurisdictions, such as the European Court of Human Rights (Strasbourg) and
the European Court of Justice (Luxembourg). This has not only brought about
a strong influence of ‘human rights thinking’ in general, but also – at least to
some extent – a shift of judicial power to decide what is ‘adequate and suffi-
cient’ with respect to the protection of fundamental rights in private law issues.
In order to evaluate the influence of fundamental rights in private law in
relation to globalization, this chapter is structured as follows. First, a few
concrete examples will be presented in order to illustrate how private law is in
Europe influenced by fundamental rights. Secondly the more technical ques-
tion of the working of fundamental rights in private law will be addressed:
what is the relationship between private law and public law in this respect?
Thirdly the (potential) added value of fundamental rights in private law will
be examined. Fourthly, the development and influence of constitutional courts
will be addressed. Then the relevance of the influence of fundamental rights in
private law will be discussed in relation to globalization. In that respect a new
development – the enforcement of fundamental rights through private law –
will be observed. Finally a few closing remarks will be made.
2 FOUR ILLUSTRATIONS
Four remarkable cases in Europe may serve to illustrate the influence of
human rights in private law disputes. These cases do not only represent differ-
ent areas of private law (contract, tort and property), but they also reflect
different jurisdictions: the German constitutional court (Bundesverfassungs-
gericht), the European Court of Justice, the European Court of Human Rights,
and a domestic (Dutch) civil law court.
2.1 The Bürgschaft Case
A profound illustration of the strong influence of fundamental rights on

contract law is the German Bürgschaft case.3 The case concerns a woman who
in 1982 at the age of 21 agreed to act as a surety for her father’s credit towards
a bank. The daughter had no relevant professional experience; she was mostly
unemployed or earned a very modest income. When her father could not pay
his debts, she was held liable for 160 000 DM. The daughter was at that time
3 BVerfG 19 October 1993, BVerfGE 89, 214.

a young mother without a job. This meant that she would most likely not be
able to free herself from this debt until the end of her life.
The case must be seen against the background of the hard line of the
Bundesgerichtshof with regard to personal surety, according to which it upheld
the principle of the binding character of a promise. The Bundesgerichtshof did
not relent in this case either, as it upheld the unilaterally binding character of
the surety.4
The German constitutional court, the Bundesverfassungsgericht, however,
judged that the Bundesgerichtshof had with its decision violated Article 2,
section 2 of the Grundgesetz, which guarantees the right to self-determination.
This right includes the right to private party autonomy, which was, according
to the Bundesverfassungsgericht, offended as the daughter had not been able
to decide freely about the closing as well as the content of the contract. In typi-
cal cases in which one of the contractual parties is in a structurally weaker
position and the consequences of the contract are very severe for that party, the
Grundgesetz requires according to the Bundesverfassungsgericht that private
law provide remedies. As a consequence, the Bundesgerichtshof judged in a
new decision that the surety was contrary to good morals and should thus be
declared void.5
This case shows that private law can be substantially influenced by funda-
mental rights within the domestic legal order. It is not only an illustration of
this substantial effect but also of the influence of a constitutional court, which
put an end to a discord in the policy of two different chambers of the
Bundesgerichtshof.
2.2 The Case of Wiebke Busch
Another telling example of influence of fundamental rights in private law is

the case of Wiebke Busch, a German nurse who had taken parental leave for a
period of three years but had expressed the wish to return to work before the
end of this period. Immediately after her employer had consented to her return
to work, the woman informed him of her seven-month pregnancy, and she
announced that she would take and was entitled to maternity leave on full pay.
The employer tried to reverse his agreement to the return to work on the basis
of error and fraud.
The European Court of Justice holds that the protection of the pregnant
woman laid down in EU directives and enshrined in domestic legislation
means that the woman was not obliged to notify her employer of her preg-
4 BGH 16 March 1989, NJW 1989, p. 1605.

5 BGH (IX) 24 February 1994, NJW 1994, 1341.
nancy.6 Further, the Court holds that the directive does not permit an employer
to revoke his consent to a female employee’s return to work before the end of
a parental leave period on the ground of error as to the pregnancy of the
employee under domestic law.
This case illustrates the strong influence of EU law regarding equal treat-
ment on private law issues,7 as it shows that domestic rules on error may not
be applied in the – according to private law – usual sense, but should be
strictly interpreted according to EU law.
2.3 The Traveller Case: Limitation of Liability
A strong impulse for the influence of fundamental rights in private law is the
jurisdiction of the European Court of Human Rights in Article 1 of the First
Protocol to the European Convention on Human Rights (ECHR) regarding the
right to the peaceful enjoyment of one’s possessions.8 Due to the extensive
interpretation of this article by the Court, especially with regard to the concept
of ‘possession’, its influence on private law issues has increased substantially.
This article has thus become a crowbar in many cases, varying from classical
private law questions regarding property and ownership even to matters of
personal injury. Illustrations of the latter are the cases in the Netherlands in
which the application of statutory rules on limitation of liability with regard to
passenger transport is concerned.
An example of a successful claim with reference to Article 1 of the First
Protocol to the ECHR is the judgment of the Amsterdam Court of Appeal in
the case of a young woman who suffered severe injuries (she lost both legs)
due to the fact that the Dutch railway company (Nederlandse Spoorwegen)
had not maintained adequate safety standards.9 The Court held that the appeal
to the statutory limitation of liability of Article 110 (section 1) of Book 8 of
the Dutch Civil Code (which holds a maximum liability of 137 000 euros in
case of death or personal injury) had to be set aside, as this appeal was consid-
ered unacceptable according to the standard of reasonableness and fairness
(good faith). The Court was of the opinion that the fact that limitation may
serve a legitimate purpose (controllability of the entrepreneurial risk and
6 ECJ 27 February 2003, Nederlandse Jurisprudentie 2003, 654 (Wiebke

Busch/Klinikum Neustadt).
7 I consider the European freedoms as fundamental rights as well. See on these
freedoms Ganten (2000).
8 See Loof (2000); Barkhuysen et al. (2005).
9 Hof Amsterdam 12 August 2004, Nederlandse Jurisprudentie
Feitenrechtspraak 2004, 543, LJN AR2333.
insurability) did not alter the fact that this case lacked a fair balance between
the general interest on the one hand and the protection of individual rights on
the other hand. In this context, the Court also considered it relevant that a
rather old limit up to a modest sum, non-indexed for inflation purposes, had
been used (which the Court thought was even ‘quite low’), whereas, the
tendency in international treaties showed an increase in amounts of limits. The
Court thus declared the appeal to the statutory limitation unacceptable.
Remarkably, in later cases the Court of The Hague and the Court of Arnhem
declared similar appeals unacceptable only to a certain level of the limitation.
The Court of The Hague independently ‘raised’ the limitation to 200 000
euros10 and the Court of Arnhem thought, referring to the compulsory insur-
ance amount for motor vehicles, a limit of 1 million euros adequate.11
These cases illustrate that fundamental rights may serve as a rich source for
arguments in private law issues where statutory law can be considered to be
no longer up to date. They also throw light on the problem that arises once
such a specific statutory rule is put aside. This, of course, is not a matter that
is specific to fundamental rights, but it can nevertheless be an important result
of judicial activism in this area of the law.
2.4 The Pye Case: Deprivation of Possession, or Not?
Perhaps one of the most exciting issues of the influence of fundamental rights
in private law is the question of whether domestic regulation of ownership of
land can be set aside with an appeal to Article 1 of the First Protocol of the
ECHR. This was at stake in the case of Pye Ltd v United Kingdom, where Pye
had been deprived of his land by the operation of domestic rules (the Land
Registration Act 1925 and the Limitation Act 1980) on adverse possession.
Pye, a property developer, had bought land in 1975 and 1977. At that time the
legal regime included the risk of losing the interest in the land after 12 years
of adverse possession (this rule was abandoned in 2002). Pye had in 1983
agreed on a grazing licence on behalf of his neighbour Graham. Graham tried
to continue that agreement in 1984, but Pye refused, because he wanted to start
building on the property soon. Graham’s attempts to contact Pye were not
answered and Graham kept using the fields for his cattle. In 1997 Graham
placed a ‘warning’ in the Land Registry that no longer Pye but Graham was
entitled to the land.
10 Rechtbank Den Haag 17 January 2007, Jurisprudentie Aansprakelijkheid

2007, 119.
11 Rechtbank Arnhem 27 May 2008, LJN BD2533, Jurisprudentie
Aansprakelijkheid 2008, 97.
The House of Lords decided – reluctantly – that, according to the old Land
Registration Act, Graham was entitled to the land.12 Pye brought the case
before the European Court of Human Rights and in 2005 the Court decided, in
the smallest possible majority, that United Kingdom law was not in line with
Article 1 of the First Protocol of the ECHR, because it did not offer Pye any
compensation for the deprivation of his property right.13
Because of the fundamental character of the issue, the case was then
brought before the Grand Chamber of the European Court of Human Rights,
which in 2007 ruled that the law on adverse possession was not in violation of
Article 1 of the First Protocol of the ECHR, because the interference with
Pye’s right should not be regarded as a deprivation of possession, in which
case compensation is mandatory, but should rather be considered as a ‘control
of use’ of the land. The Court found that the result of the control of use by the
Land Registration Act (the loss of property by Pye) did not upset the fair
balance between the aim of the interference and the means employed.14
These cases stress that, although the European Court of Human Rights
appears in the end to be reluctant to interfere with domestic regulation of prop-
erty of land, this area of domestic law, which could be considered at the heart
of private law, is not ‘safe’ from the influence of the Court.15 They illustrate,
therefore, not only that this area is not immune from the influence of funda-
mental rights but also the, be it cautious, willingness of the European Court of
Human Rights to interfere with domestic law in this domain.
3 BRIDGING THE TRADITIONAL DICHOTOMY

BETWEEN PRIVATE LAW AND PUBLIC LAW
The above described cases have all, at least initially, been solved in private law
disputes, settled before civil courts. There is also little doubt that private law
can – by its flexible structure – technically dispose of adequate and sufficient
tools to deal with issues of fundamental rights. Yet, there can be much dispute
about the question of how fundamental rights could find their way – in a more
technical way – into private law, as well as about the question of to what extent
12 Pye v Graham [2003] 1 A.C. 419. See on the English decisions also Zwalve
(2005, p. 336).
13 ECHR 15 November 2005, nr. 44302/02 (Pye v United Kingdom I).
14 ECHR 30 August 2007, nr. 44302/02 (Pye v United Kingdom II).
15 See on the influence of fundamental rights on property rights in South Africa
for instance van der Walt (1995) pp. 169 ff.; van der Walt (2002, pp. 254 ff.); van der
Walt (1999).
fundamental rights should influence the outcome of private law disputes. The
first question will be addressed shortly in this section; the ‘added value’ of the
fundamental rights perspective in private law will be discussed in the next
section.
An essential question in the debate about the influence of fundamental
rights in private law is how an appeal to fundamental rights may be interpreted
in private law issues. In other words, how can fundamental rights, which seem
to spring from a public law tradition, fit into the structure of private law
debates? For a large part, this question reflects the distinction between the
direct and indirect effects of fundamental rights,16 but even if one prefers the
approach of indirect effect, different modes of influence of fundamental rights
in private law can be distinguished.17
First, several fundamental rights have found their way into specific private
law regulations, such as the law regarding labour contracts or medical treat-
ment, which in many respects contain ex ante assessments by the legislator
with regard to individual rights and freedoms. In these cases the private law
rules can be said to have been influenced ab initio by fundamental rights. The
influence of human rights from an extra-national source seems most problem-
atic for this category of private law rules, because it immediately appeals to
the issue of supremacy.
Secondly, fundamental rights may find their way through general clauses in
the private law domain, such as unlawfulness, negligence, good morals or
good faith.18 Private law thus offers several structures such as ‘open norms’
which may serve the influence of fundamental rights in the process of balanc-
ing of interests.
Thirdly, private law occasionally seems to allow a specific role for a funda-
mental right in forming a basis for an action in court. For example, a funda-
mental right may, then usually under the flag of a personality right (German
Persönlichkeitsrecht, Dutch persoonlijkheidsrecht), be recognized as a ‘private
law right’ as such.19 The Dutch Hoge Raad has, for instance, spoken of the
general personality right underlying basic rights, such as the right to privacy, the
right to freedom of thought, conscience and religion, and the freedom of expres-
sion. This shows that fundamental rights may constitute a source for solutions in
a private law context, even if they have not been articulated in detail in consti-
tutional rights and without the need to address formal effect issues.
16
See for an early strong advocate of direct effect Nipperdey (1950, pp. 121–8).
17
See on the state of affairs with regard to direct and indirect effects recently
Mak (2007, pp. 46 ff.).
18 See Heldrich and Rehm (2001, pp. 113 ff.).
19 See on this role of persoonlijkheidsrechten Lindenbergh (1999, pp.
1665–1707) and Nehmelman (2001).
All in all, private law seems technically sufficiently flexible to accommo-

date fundamental rights properly. One can of course argue that as a result the
added value of fundamental rights in private law is limited, because funda-
mental rights take a subsidiary position in private law, as private law itself is
(at least more or less technically) decisive for their influence, and that the
diffuse character of fundamental rights accounts for a lack of guidance to solve
private law disputes.20 This may be true, but it does not detract in any way
from the ability of private law to host and vindicate fundamental rights in
private law. The argument is, furthermore, weakened by the above described
examples, which show the material influence of fundamental rights in solving
conflicts in a private law setting.
With this in mind, it can be said that private law technically offers adequate
tools for the accommodation of fundamental rights and, consequently, it
allows rights and values from other domains, such as public law, to influence
the private law domain. It seems, however, too simple to think that funda-
mental rights are public law features which have originated from public law
and which only recently have tended to ‘invade’ private law by interpretation.
It can be said that the nature and the maintenance of fundamental rights not
only originate from public law; they have private law roots, at least as well.21
It is, therefore, questionable to see the influence of fundamental rights in
private law as an issue of conflict of public and private law and it would be
better to approach it as a matter of convergence: fundamental rights are of a
universal nature that exceeds the distinction between the private and public
law domains.
This, of course, brings us to an evaluation of the material influence of
fundamental rights in private law. It does, however, also stress the importance
of the issue of jurisdiction in a multi-level setting. The question is no longer
primarily whether it is a civil court or an administrative court that has juris-
diction over a specific fundamental rights issue, but much more whether a
traditional civil law or public law jurisdiction is influenced by a national or
supranational court that is willing and able to guarantee fundamental rights
and to place their vindication on its policy agenda. This aspect will be
addressed later on.
20 Smits (2003, pp. 1–161); Smits (2005, pp. 9–22).

21 See on this thought Banakis (2005, pp. 83–96).
4 THE ADDED VALUE OF A FUNDAMENTAL RIGHTS

APPROACH IN PRIVATE LAW
Of a more normative nature than the question of how fundamental rights can
find their way technically into the structure of private law debates is the ques-
tion of whether, and to what extent, these rights should influence private law.
In this respect, there seem to be ‘believers’ as well as ‘non-believers’. Smits,
for instance, advocates scepticism by arguing that private parties are, as a
matter of principle, not bound by fundamental rights, because these rights are
by their origin and nature meant to protect the free sphere of private parties
from state influence.22 Whether this is true or not, this view seems to be based
on a rather traditional distinction between private and public law. The debate
about the value of fundamental rights in private law precisely shows that the
fundamental values enshrined in these rights are of profound influence and
cannot be neglected in the private law debate. This is not altered by the fact
that human rights may have a different meaning and effect in private law rela-
tionships from those they have in the relationship between the state and a citi-
zen.23
The added value of a fundamental rights approach in private law has been
an – often unforeseen – change of perspective on rather classical private law
issues. Fundamental rights thus primarily serve as a source of inspiration that
can add new viewpoints to a more traditional dogmatic civil law approach.
Looking at the above described cases, a fundamental rights argument offers,
in each case, a surprising angle that has been of more or less influence on the
solution of the conflict. It is primarily this aspect that shows the added value
of fundamental rights in private law: an enrichment of legal discourse in
private law.24 This is not only a matter of argumentation; it also stresses the
importance of essential values and interests that might, in a more patrimoni-
ally oriented civil law model, otherwise be disregarded. Fundamental rights
may thus serve as a source of inspiration for what is considered a just solution
in society, as a signal of the seriousness of a case in which human dignity is at
stake,25 and – if necessary – as a crowbar to vindicate these interests.
22 Smits (2005, p. 19).

23 See on this issue in relation to the private sphere for example Clapham (1993,
p. 134): ‘The State has no right to privacy; it has a claim to secrecy.’
24 See also Nieuwenhuis (2005, pp. 1–8).
25 Cf. Smits (2005, p. 22).
5 CONSTITUTIONAL AND/OR SUPRANATIONAL

COURTS AS DRIVING FORCES
There is little doubt that the establishment of courts that have the protection of
fundamental rights as a more or less specific mission has been of unmistakable
influence for the development of fundamental rights in private law. In Europe,
the European Court of Human Rights, the European Court of Justice and the
German Bundesverfassungsgericht each have shown that the interpretation
and application of private law is no longer the sole domain of national civil
courts. This can be seen as an aspect of globalization in the sense that external
jurisdictions influence the development of domestic (private) law. In my opin-
ion this development should be judged as beneficial. Fundamental values
enshrined in fundamental rights can thus exceed the national territorial borders
as well as the traditional boundaries of the legal domains of private law and
public law. In this respect the law seems to have become more flexible; at least
there has been a challenging appeal to its flexibility.
The reverse of this is that the relative success of fundamental rights in
private law is, to a certain extent, dependent on the competence as well as the
‘political’ agenda of these courts. Although the above described case of the
influence of Article 1 of the First Protocol of the ECHR on the limitation of
liability exemplifies that national civil courts can allow influence to funda-
mental rights independently, it is not plausible that this would have happened
had the European Court of Human Rights not stressed the importance of the
Article in earlier decisions. This does not only emphasize the dependence of
the development of fundamental rights in private law upon the existence of a
supranational legal order; it also limits this development to the specific agen-
das of the courts in charge. The impact of this limitation must, however, not
be overestimated. The supranational jurisdiction does not necessarily have to
be one at a global level. Regional jurisdictions have, for instance in Europe,
proved to be successful as well. Moreover, different jurisdictions in the same
region, such as the German Bundesverfassungsgericht, the European Court of
Human Rights and the European Court of Justice, have had their effects in the
same region.
6 ISSUES IN RELATION TO GLOBALIZATION

The influence of fundamental rights in private law typically crosses traditional
theoretical distinctions as well as national borders and can, therefore, be seen as
an example of legal globalization. As human rights often have their source in
international treaties, the influence of human rights on private law can be seen
as a globalizing influence on private law: the national private law jurisdiction no
longer has sovereignty in issues of private law. National private law is influ-
enced not only by the explicit conversion of human rights treaties into national
law, but also by a more ‘sneaking’ influence of human rights through judg-
ments in which national courts apply fundamental rights with international
origins in specific local private law matters. The above described examples
show that human rights may offer inspiring viewpoints that offer new hori-
zons. In individual cases this may lead to favourable solutions on an ad hoc
basis, but on a more fundamental level it raises questions about the role of the
national legislator in relation to the international judiciary. Who is competent
with regard to which issue and who decides eventually what the law is?
Human rights may also be from another perspective relevant in relation to
globalization. In a globalizing world multinational corporations and other
international organizations more and more seem to define the normative
agenda that affects national citizens even in their most local setting. This raises
the question of the democratic standard of such rules. From this perspective
fundamental rights can possibly serve as proper tools to set aside rules that
lack a sufficient democratic basis. They can, from an ‘internal’ or national
perspective, serve as guards for the democratic standard of legal rules.
Both of the above described functions show the ability of private law to
host fundamental rights as well as the flexibility of private law to apply these
rights. The influence of fundamental rights in private law is however, also in
relation to globalization, far from unproblematic.
In the first place fundamental rights usually consist of rather ‘raw’ legal
material that offers little guidance.26 This makes the application as well as an
outcome of the application of fundamental rights in private law situations
unpredictable and it can therefore affect legal certainty. This also raises the
question of whether the judiciary can sufficiently deal with the application of
fundamental rights in individual cases and which cases are more suitable for
the legislator to decide. The Dutch example of the strongly diverging amounts
of the limits of liability in transportation cases (the court of The Hague chose
200 000 euros; the Arnhem court thought 1 million euros to be adequate) illus-
trates that some issues would better be covered by the legislator in order to
avoid arbitrariness.
In the second place the application of fundamental rights by an interna-
tional court or institution may impose values that exceed or are contrary to
locally approved values. The universality of fundamental rights seems to a
certain extent to vary according to their nature as well as to the location of
their application, and thus their weight may be valued differently in concrete
26 See for example on the already many different aspects of personal freedom
Marshall (2009).
situations. For example, the right to life and freedom will probably be valued
as more fundamental than the right to economic development or the right to
equal opportunity,27 and the right to economic development will be valued
differently in varying economic situations.28 From this point of view the bene-
fit of the concept of universality of fundamental rights in relation to global-
ization – fundamental rights are so fundamental that they can and should be
applied everywhere and any time – may prove to be a drawback: the funda-
mentality of these rights can be challenged in all places, at all times and in
every specific situation.
7 A DIFFERENT PERSPECTIVE: PRIVATE LAW AS A

TOOL FOR PROTECTION OF FUNDAMENTAL
RIGHTS
With respect to fundamental rights private law may, however, have something
else to offer that can be of importance in a globalizing legal order. Recently,
attention has been paid to the question of how private law can help to provide
rules to present incentives for companies to respect fundamental rights in their
production and trade, both in their country of origin and elsewhere. Van Dam,
for instance, advocates the application of the tort concept of negligence to
companies in order to motivate them to respect fundamental rights.29 Thus a
company should apply due diligence with regard to fundamental rights, not
only in its own actions but also in relation to its daughter-companies and busi-
ness partners. It must be said that the tools for plaintiffs to vindicate their
rights in an international setting are yet limited, but for instance the American
Alien Tort Claims Act illustrates that claims with regard to human rights can
be heard in a foreign jurisdiction.30
Moreover, the violation of fundamental rights by companies may call for
regulation to protect the level playing field of competition, since the produc-
tion of companies obeying fundamental rights may be more expensive than
that of companies which disregard and violate fundamental rights. In this way
protection of the economic market may serve as a vehicle that results in
protection of fundamental rights.31
27 See on the latter Benson (2001, pp. 201 ff.).

28 See for instance on ‘freedom rights’ versus ‘social rights’ Hesselink (2002, pp.
177 ff.).
29 See Van Dam (2008).
30 In Europe this possibility is yet very limited. See Zegveld (2008).
31 Van Dam (2008, p. 52).
Furthermore, private law may play a role in – indirect – vindication of

fundamental rights through consumer law. If consumers derive and vindicate
rights from fair trade labels, this may influence company behaviour with
respect to fundamental rights.32
These aspects throw a new light on the function of private law with respect
to fundamental rights in a globalizing world: not only may they serve as
anchors for the interpretation of private law, but also national private law may
also become a tool to protect fundamental rights elsewhere in the world. If one
cannot export fairness by directly imposing fundamental rights elsewhere, one
can impose it indirectly by importing it.
8 CONCLUDING REMARKS
The development of fundamental rights in private law seems to be an inspir-
ing example of fundamental values presenting incentives as well as tools to
exceed traditional national structures of both private and public law.
Furthermore, the development of supranational jurisdictions, which have stim-
ulated the development of fundamental rights profoundly, has formed an
important aspect of globalization of the legal arena. In this respect fundamen-
tal rights have the characteristics of potentially successful carriers of legal
development in a globalizing legal order.
These characteristics, however, have their reverse side as well. As described
above, the development and influence of fundamental rights in private law
seems to a large extent dependent on the existence and power of supranational
jurisdictions. Furthermore, fundamental rights are, at least in their original struc-
ture, rather vague and undetermined, which makes their direct implementation
difficult. And, finally – this may be the most difficult characteristic – in a global
setting, the universality of fundamental rights may not be so self-evident. What
is considered fundamental, and which specific consequences this fundamental-
ity should have in a certain case, seems to a large extent to be dependent on the
region in which the question is raised. For instance, the right to equal treatment
of men and women may in several areas of the world be considered fundamen-
tal, but it is not at all obvious that this will, or perhaps should, lead to the
outcome of the earlier described case of Wiebke Busch wherever such a case is
brought before a court. Therefore, although fundamental rights are often
presented as carriers of universal values, their weight may be assessed differ-
ently in varying countries and cultures. It will be a serious challenge for the
global legal order to account for and deal with this fundamental problem.
32 See on this Castermans (2008).

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12. Globalization and multi-level
governance of environmental harm
Michael Faure
1 INTRODUCTION
1.1 Starting Point
The starting point for most of the chapters in this book is that lawmaking, and
more particularly the development of private law, poses specific challenges in
the era of globalization. It is this particular influence of the broad globaliza-
tion phenomenon on private lawmaking that has been the central focus of the
contributions in this book. This chapter will take up the challenge to examine
this relationship between globalization and (private) lawmaking as far as the
area of environmental law is concerned.1
There are potentially so many interfaces between globalization and envi-
ronmental problems that one could easily write an entire monograph simply
dealing with this relationship. The aim of this chapter is, however, more
modest. I will merely attempt to identify the influence of environmental issues
on globalization and vice versa, from both a positive and a normative perspec-
tive. This will allow me to identify a few issues that play a role in this respect
and to indicate a few areas where the relationship between globalization and
environmental law could lead to tensions.2 Within the scope of this chapter it
is not possible to even attempt to resolve these tensions. One can at most try
to identify some core questions and analyse to what extent environmental
issues pose problems or challenges for globalization that may be different
from those in other areas discussed in this volume.
1 See on this topic also the challenging paper by Wirth (2007).

2 However, according to some authors these tensions are highly exaggerated.
See for example Wirth (2007, p. 1): ‘Pitting globalization and environment against each
other as conflicting goals is a simplistic and self-defeating perspective.’ Also Howse
holds that it is at this moment no longer useful to discuss whether globalization as such
is good or bad: ‘This debate, I argue, is over, above all because the antiglobalizers have
themselves gone global’ (Howse 2008, p. 1529). See, however, for a different perspec-
tive the contributions in Speth (2003).
383
The central issue discussed in this chapter is hence how an analysis and
discussion of environmental pollution and the related environmental law and
policy issues can contribute to a quest for the relationship between globaliza-
tion and private law, which lies at the heart of the contributions to this volume.
1.2 Challenges
There is a broad literature on the relationship between globalization and

specific environmental problems. In this respect, one can for example refer to
the broad literature on sustainable development3 or one could focus on the
question of how international law could be used as a remedy against trans-
boundary environmental pollution4 or on the literature on multi-level gover-
nance and the environment.5 These and many other issues are debated under
the heading of globalization and environmental problems. Some economists
pay particular attention to the relationship between economic competitiveness
and environmental issues6 or to the relationship between free trade and envi-
ronmental protection.7
It is of course impossible within the scope of this chapter to discuss all of
these issues in detail. Hence, a different approach will be followed. I will
rather try to identify the various types of potential conflicts between environ-
mental protection and globalization by structuring the various potential topics
along two main lines of division (although I immediately admit that in some
cases it is not so easy to sharply distinguish where a particular issue or conflict
should best be categorized). A first dividing issue is whether the problem
concerns the influence of environmental problems on globalization or whether
it is rather the reverse – that globalization has a particular influence on envi-
ronmental law and policy. A second dividing line would be to identify the posi-
tive analysis whereby one would examine or rather describe the mutual
relationship between environmental pollution and globalization. This would
be distinguished from the situation where a normative statement would be
3 See more particularly on the relationship between globalization and sustain-

able development Baker and McCormick (2004) and Martens and Zywietz (2006, pp.
331–50) as well as Martens (2007, pp. 39–47) and Sands (2000, pp. 369–409). And see
the contributions in Bugge and Voigt (2008).
4 See for example Birnie and Boyle (2002) and Sands (2003). See also the
contributions in Faure and Song (2008) and in Bratspies and Miller (2006).
5 See generally on multi-level governance de Prado (2007) and Follesdal et al.
(2008) and see on multi-level governance and environmental issues especially the
contributions in Winter (2006).
6 See more particularly Porter and Van den Linde (1995, pp. 97–118) and
Copeland and Taylor (2004, pp. 7–71).
7 See for example Vogel (2004, pp. 231–2).
Multi-level governance of environmental harm 385
formulated concerning this particular relationship. In the latter case, the analy-
sis would involve arguing whether the influence of globalization on environ-
mental issues is desirable or not. In order to be able to provide such a
normative statement, one undoubtedly needs a point of reference.
To the extent that this chapter will provide such a normative indication
concerning the relationship between environmental problems and globaliza-
tion, the reference point used is usually the one provided by economics,
namely efficiency. I consider the economic approach to law generally, and to
environmental law and policy in particular, a very useful methodology not
only to structure particular questions but also to provide an indication of the
desirability of particular developments.8 With this, I of course do not argue
that efficiency is the only criterion that should guide environmental policy.
Other criteria such as the desire to provide a high level of environmental
protection may also play a role at the policy level, for example to examine the
influence of globalization on environmental issues. Still, in that particular case
economic analysis remains useful. It will for example allow indicating
whether the choice of a high level of environmental protection may come at a
(too) high price.
Even though it may in some cases be artificial to separate particular issues
along the lines suggested above, I will try to order the various questions that
could arise along those lines merely because I hope it may provide a frame-
work to structure the otherwise too complex and manifold questions. The
structure is hence merely chosen for reasons of presentation, not always for
contents.
This chapter will on the one hand discuss the relationship between global-
ization and environmental problems generally. However, since that may be
slightly too ambitious and complex, the major focus will, within the general
framework of this project, obviously be on the particular relationship between
globalization and environmental law and policy. Given the general focus of the
other chapters in this volume on the influence of globalization on private
lawmaking, there will equally be a strong focus on private law. However, given
the important influence of regulation in environmental law and policy, many
issues will deal with environmental regulation as well as with private law.
1.3 General Background
The goal of this chapter is to contribute to the general aim of this book, being
to identify particular challenges posed by globalization for environmental law
8 A summary of the economic approach to environmental law and policy can be

found in Faure and Skogh (2003).
and policy. Hence, some of the more general questions, also indicated in the
introduction to this volume, concerning the relationship between globalization
and private lawmaking will be analysed within the specific context of envi-
ronmental problems.
One particular issue that will play a major role in the globalization debate
generally and hence also for environmental problems is to what extent there is
a ‘lawmaking beyond the nation state’. The challenges posed by this multi-
level governance lead to the institutional questions of who sets the agenda and
who takes decisions on the appropriate remedies for (also transboundary)
environmental harm.9 The general question, being to what extent a shift to
higher levels of governance leads to increasing problems of accountability and
legitimacy, will also be a crucial one in the environmental context. The goal of
this chapter will be to identify the specific issues and topics that arise in that
respect and perhaps to indicate in what direction solutions may be found.
An equally central focus of this chapter will be that, although many prob-
lems to be discussed in this contribution seem ‘global’ in the sense that, for
example, lawmaking emerges from international organization or deals with
transboundary environmental pollution, the problems often have effects for
individuals in private legal relationships. It is more particularly this relation-
ship between the various legal orders (international, regional (such as
European), state and local levels) that poses interesting questions for the way
environmental problems are dealt with in a specific context.
1.4 Structure
The remainder of this chapter is structured as follows: after this introduction,

the influence of environmental issues on globalization will first be analysed
from a positive perspective (2); next, the influence of environmental issues on
globalization will be analysed from a normative perspective (3). Then, the
influence of globalization on (private) environmental law and policy will be
analysed positively (4) as well as normatively (5). Finally, an indication will
be provided of the particular contribution of environmental problems to the
debate on the influence of globalization on private lawmaking (6).
9 See for the various possible remedies for transboundary environmental harm
Nollkaemper (2008).
2 INFLUENCE OF ENVIRONMENTAL ISSUES ON

GLOBALIZATION: POSITIVE ANALYSIS
One can easily identify some environmental problems that have shaped, or at
least influenced, the globalization debate. For now, I will simply mention a
few of those issues and mainly be content with describing them; in the next
section (3) an attempt will be made to address some of these developments
from a more normative perspective.
2.1 Increase of Transboundary Pollution
It seems like pushing at an open door to argue that one way in which environ-
mental problems have ‘gone global’ is that pollution problems have increas-
ingly become transboundary.10 To a large extent, this may be the result of an
increased awareness of the transboundary character of environmental pollu-
tion.11 Environmental pollution probably always had a transboundary charac-
ter, but perhaps it is also due to increased technological abilities that the
sources can be traced back to transboundary pollution.12 Originally, the focus
of environmental awareness was on the so-called point source pollution
coming from particular identifiable sources (such as emissions by factories),
in addition to problems for workers,13 leading to pollution of the soil and
(local) surface or ground waters. Most likely, already during the time of indus-
trialization, emissions by particular factories caused transboundary air pollu-
tion, but lacking technical abilities we were often prevented from tracking
down the sources of air pollution. In the second half of the last century, the
attention shifted as a result of an increasing awareness that many environ-
mental problems have a transboundary character. Hence, the focus increas-
ingly rested on problems caused by so-called long-range air pollution and acid
rain.14
From an economic perspective, the basic problem was that local industry
exported environmental pollution, leading, at least, to a de facto ‘externaliza-
tion’ of pollution problems. Economists have often argued that the reasons for
10 See inter alia Lemke (2006).

11 See for a fuller account of the importance of transboundary impacts Handl
(2007).
12 Also Bhagwati (2007) believes that globalization has been driven in an impor-
tant way by technical change.
13 Notice that environmental law in many countries originated from a shift in
attention from safety at work to the so-called external safety around the factory.
14 See for example the 1979 Geneva Convention on Long-Range Transboundary
Air Pollution (LRTAP) and the subsequent protocols.
the transboundary character of environmental pollution problems are well

known: local politicians will not have many incentives to act strongly against
polluters who may be able to export large quantities of the pollution outside
the borders of the national territory. Thus the polluting activity could result in
socio-economic benefits for the nation (increased tax revenues and job secu-
rity), whereas the negative effects (referred to as externalities by economists)
are shipped to the neighbouring countries.15 Since politicians primarily need
to be re-elected by the citizens within their particular state, their primary
concern may not be with the transboundary effects of pollution caused by
factories within their nation. In that sense, one could even argue that one
should not be surprised that such an externalization of pollution to other coun-
tries takes place. That problem is as such well known and not new. It has been,
as mentioned in the introduction, the task of international environmental law
to provide remedies against this externalization of pollution. These remedies,
however, emerged long before globalization became an issue on the political
or academic agenda.
There is, however, one particular issue that has definitely changed the polit-
ical and academic agenda, namely what was referred to in the 1990s as global
environmental change and in this century simply as the problem of climate
change. If there is one example of a ‘global’ environmental problem it is
undoubtedly climate change. Not only can sources not be traced back just to
particular polluters in specific nation states, but so-called non point source
pollution (such as aviation) has also largely contributed at least to increased
CO2 emissions and arguably to climate change as well. The example of
climate change immediately shows the difficulty in arguing that there would
be a causal relationship between globalization and a particular environmental
problem. One can undoubtedly argue that climate change is the ultimate exam-
ple of a global environmental problem and in that sense it influences the glob-
alization debate. On the other hand, it is obviously not necessarily (economic)
globalization in the sense of lowering restrictions on trade that would have
caused the climate change problem. For a more in-depth discussion of the
legal aspects of climate change we refer to the relevant literature in that
respect16 and more particularly to Chapter 13 by Spier in this volume.
2.2 Increased Mobility of Products and Services
Another clear example of a relationship between environmental issues and

globalization (even though again the direction of the causality is not that clear)
15 See Faure and Betlem (2008, pp. 129–91).

16 Johnston (2008); Van Ierland et al. (2003), Stewart and Wiener (2003), Faure
et al. (2003), Douma et al. (2007b) as well as Peeters and Deketelaere (2006).
relates to the mere fact that as a result of technological changes, increased

possibilities of transport, lower transportation costs and so on the mobility of
products, capital, labour and services has strongly intensified. It is precisely
this increased mobility which according to some qualifies as ‘globalization’.
The increased mobility and the corresponding increasing (international) trade
have undoubtedly led to significant welfare gains which have been described
in many economic studies. However, at the same time, many have also pointed
to the fact that with an increased mobility of products and services not only do
the beneficial aspects of these products increasingly travel but also the nega-
tive side-effects, earlier referred to as externalities. Indeed, one aspect is that
the increased mobility not only applies to regular products but also for exam-
ple to waste. The increasing technological possibilities provide inter alia for
producers of waste possibilities to use economies of scale and enable them to
look for the place where, for example, incineration costs (or taxes) may be the
lowest.17 This export of environmental problems, leading effectively to a glob-
alization of trade in pollution (more particularly waste), does not go undis-
puted.
Other examples of this relationship between increased mobility and envi-
ronmental issues can be provided. Particular problems arise, for example,
when products from a country with low environmental (or labour) standards
are imported into countries with higher standards, whereby the question arises
to what extent the higher environmental standards can also be imposed upon
the imported products, which would effectively raise barriers to trade.18
In addition, in some cases, differences in the environmental standards (or in
the pollution absorbing capacity) of countries have led to a mobility of firms.
In that sense, the possibilities of increased mobility have effectively been used
by many polluters who have, according to Tiebout’s theory, ‘voted with their
feet’ and moved particularly polluting activities to other jurisdictions.19 The
increased exodus of, for example, textile firms from Europe towards Southeast
Asia is one important example.20 Some argue that the enlargement towards
Eastern Europe also provides increased possibilities for environmental mobil-
ity of firms in Western Europe to the east.21
17 See Lavrysen (1995).

18 See on this issue inter alia Vogel (2004).
19 See Tiebout (1956).
20 Although this obviously took place not only because of differences in envi-
ronmental standards but also because of differences in labour costs, taxation, costs of
raw material etc.
21 See Faure and Johnston (2009).
The most literal form of an interrelationship between pollution and global-

ization could probably be found in systems where a trading in pollution rights
is allowed. Whereas some economists still considered such a trading system as
an original but rather crazy idea in the 1990s, after some experiments in the
US, emissions trading has gained popularity at the policy level as the main
instrument to fight climate change. Even though there is not yet a full global-
ization in the sense of an international emission trading scheme, there are
important regional emission trading schemes, such as the one for greenhouse
gases in the European Union.22
2.3 Lowering Environmental Quality?
The probably more interesting issue is whether the relationship between glob-
alization and environmental pollution leads also to a lowering of environmen-
tal quality.23 The hypothesis would thus be that the increasing transboundary
character of pollution would lead not only to an increased mobility of pollu-
tants, but also to more pollution and hence to a lowering of environmental
quality. This corresponds with an intuitive feeling, launched for example by
the so-called anti-globalists, that free trade would be the enemy of environ-
mental protection.24 The intuitive appeal of this argument rests on the
economic notion referred to above that states will attempt to externalize envi-
ronmental pollution. If this externalization took place without remedies, more
trade would undoubtedly lead to more pollution.25 Another theoretical back-
ing for this statement is that states would increasingly engage in a competition
for ever lower environmental standards. Since states would desire to attract
industry, they would lower their environmental standards and, since compet-
ing firms would do the same, a prisoner’s dilemma would emerge, resulting in
an overall lowering of environmental quality. It is the well-known problem of
the race to the bottom.26
22 For an account of the first experiences, see Faure and Peeters (2008).
23 See for a strong statement that economic globalization negatively affects envi-
ronmental quality: Mander (2003); for a more nuanced picture with a review of the
empirical literature see Copeland and Taylor (2004, p. 7 ff.) (arguing inter alia that
increased trade and economic growth also raises environmental quality).
24 Here again, one notices that it is difficult to distinguish between environmen-
tal problems affecting globalization versus globalization influencing environmental
issues. The feeling is often that free trade agreements have a ‘chilling effect’ on domes-
tic regulation to protect public health and the environment, so Wirth (2007, p. 1).
25 For a critical perspective on this ‘transboundary externality’ argument in
favour of centralization see Revesz (1996).
26 For a critical perspective on this race-to-the-bottom rationale for centraliza-
tion see equally Revesz (1992).
Notwithstanding the theoretical appeal, the empirical evidence for this

race-to-the-bottom hypothesis is rather weak; at least it depends on the
specific territory where one examines this phenomenon. David Vogel has for
example powerfully argued that there is empirical evidence that states do not
always engage in a race to the bottom, but in some cases in a so-called race to
the top.27 The basic intuition is that export-oriented firms that have to comply
with stringent (environmental) standards abroad will also strive for more strin-
gent standards in their home country. Based on the experience in the state of
California, this is referred to by some as the California effect.28 However,
Princen shows that this California effect (competing for higher environmental
standards) only works with strong public interest groups that collide with the
interests of industry. The intuition here is that export-oriented firms may have
an interest in imposing the stringent standards with which they have to comply
in the export country also domestically, probably partly in an effort to raise
barriers to entry. Their interests may hence coincide with those of green NGOs
that are also (but obviously for different reasons) in favour of more stringent
environmental standards in their home country and thus form a coalition with
industry.
However, when those coalitions do not emerge (and hence no trading up takes
place), there is also a risk that free trade may win from environmental protection.
Empirical evidence depends very much upon the region one considers. For exam-
ple, within the US and Europe, empirical evidence shows that industry does not
relocate to ‘pollution havens’ simply because environmental costs in other
(member) states would be lower.29 However, empirical research also indicates
that environmental costs may be one of the elements taken into consideration by
firms when deciding upon a new location.30 The relevant question is whether the
benefits of moving (being the marginal costs related to the differential in costs of
compliance with environmental standards) outweigh other costs (such as reloca-
tion costs).31 Another issue is of course to what extent environmental costs consti-
tute an important element in total production costs. This may explain why, for
example, for a firm in Germany it may be beneficial to move production to
Indonesia (since marginal cost differences may be substantial) but not to Belgium
(since marginal cost differences may be minimal).
27 It is what David Vogel refers to as the phenomenon of ‘trading up’: Vogel

(1995).
28 See in this respect the interesting doctoral dissertation by Princen where he
has analysed this phenomenon in detail: Princen (2002).
29 See Faure (1998, pp. 171–3).
30 See Jaffe et al. (1995).
31 See Kolstad and Xing (2002) as well as Becker and Henderson (2000) and
Greenstone (2002).
Whether increased ‘globalization’ (in the sense of mobility) of environ-

mental pollution therefore leads to a lowering of environmental quality very
much depends on the particular circumstances and the regions concerned.32
Roughly speaking, one could argue that within large federal systems like the
EU and the US there is hardly a race to the bottom between (member) states
(leading to a lowering of environmental quality) but that such a race to the
bottom may be realistic in case of mobility from the developed north to the
less developed south.33
3 INFLUENCE OF ENVIRONMENTAL ISSUES ON

GLOBALIZATION: NORMATIVE ANALYSIS
Again, I should stress that one can debate whether the issues really concern the
influence of environmental issues on globalization or whether it is rather the
reverse. The division presented here is, as was mentioned, merely chosen for
reasons of presentation, not so much for contents.
The normative questions that follow from the relationship between envi-
ronmental issues and globalization which have been identified positively in
Section 2 will now be addressed at a more normative level. Normatively, the
question of course arises regarding to what extent one considers some of the
phenomena resulting from an increased relationship between globalization and
environmental pollution as desirable or not. Without attempting to provide a
final answer to these complicated issues, I will only attempt to identify some
ways in which one could address these problems. This may help in structuring
the research and policy agenda. The increase in the transboundary character of
environmental problems (and thus the globalization of environmental pollu-
tion) undoubtedly leads to questions related to, for example, the institutions
that need to address these globalized environmental problems, the level of
governance at which issues should be addressed and the consequences of the
normative environmental standards to be imposed.
3.1 Multi-Level Governance
A first question at the normative level is, to put it simply, whether the glob-
alization of environmental problems makes a globalization of law neces-
32 See Faure and Johnston (2009).

33 See in this respect Gupta (2006) who is for that reason very critical of apply-
ing the idea of regulatory competition also in the north–south relationship. For a
detailed overview of the empirical literature in this respect see also Copeland and
Taylor (2004).
sary.34 The straightforward argument would be that a globalization of pollu-

tion necessitates a globalization of environmental law.35 Even though it
sounds rather simplistic, the argument may have some support from economic
analysis from two different angles. One angle would be that as soon as pollu-
tion crosses national borders and a risk of an externalization of environmental
pollution thus emerges, a remedy should be found at a higher level to force the
‘pollution exporting’ state towards an internalization of its transboundary
pollution.36 However, even though the argument that some legal remedy is
necessary against this transboundary pollution is undoubtedly valid, the ques-
tion remains as to whether this really should take the form of a centralization
or harmonization of law.
An alternative presented in the literature is simply the transboundary appli-
cation of domestic standards on transboundary pollution.37 There are many
examples of this. In the European context one could notice an important evolu-
tion in the case law of the European Court of Justice allowing victims of trans-
boundary environmental pollution to sue foreign polluters either in the state of
the polluter or in the victim state.38 In the latter case (which is obviously more
favourable for the victim) a foreign polluter would be confronted with an
extra-territorial application of the victim state’s law. For example in the
Netherlands this has led to many cases brought by environmental NGOs and
individual victims against Belgian and French polluters (of the rivers Rhine
and Meuse) effectively claiming the application of Dutch law to pollution
which had its source in Belgium and France respectively.39
However, while these types of remedies40 may work in particular contexts
34 Many of those issues are also addressed in the contributions in Winter (2006)
and in Follesdal et al. (2008).
35 See Esty and Ivanova (2003).
36 See Van den Bergh (2000, pp. 88–92).
37 This could be done via a liability suit whereby a downstream victim of pollu-
tion sues upstream polluting firms. See on those possibilities Faure and Betlem (2008),
Boyle (2006) and Nollkaemper (1998).
38 This was decided by the European Court of Justice in the well-known ruling
in the Bier case (case 21/76 Bier v Mines de potasse d’Alsace, (1976) ECR 1735,
1748–9: ‘The expression “place where the harmful event occurred”… must be under-
stood as being intended to cover both the place where the damage occurred and the
place of the event giving rise to it. The result is that the defendant may be sued, at the
option of the plaintiff, either in the courts for the place where the damage occurred or
in the court for the place of the event which gives rise to and is at the origin of the
damage.’
39 See for a detailed discussion of these examples Faure and Betlem (2008, pp.
129–91).
40 Also advocated in many publications by Esty and Geradin. See inter alia Esty
and Geradin (1997, 1998 and 2001).
(like the Belgian–Dutch damage claims) the transboundary application of

domestic standards can, as we will discuss below, to some extent also conflict
with rules concerning free trade, emerging from either regional organizations
(like the EU) or from world trade law. Hence, to some extent, the remedy
against this transboundary pollution may have to come from a standard setting
at a higher legal order. Institutionally, the transboundary character of the pollu-
tion would thus constitute an argument in favour of harmonization of envi-
ronmental law, or at least in favour of a centralization of the decision
making.41
A second related argument would be that when pollution crosses national
borders, a decision-making authority has to be found that is large enough to
deal adequately with the pollution problem. The justification in that particular
case would simply be one of economies of scale: by looking for an authority
which has jurisdiction over the entire territory covering the pollution problem,
substantial savings on transaction costs could be achieved. This type of argu-
ment would hence justify, for example, shifting the standard setting for water
pollution in transboundary rivers like the Meuse or Rhine to a body like the
EU. It would equally justify shifting the decision making for a global envi-
ronmental problem like climate change to an authority with global jurisdiction
like the UN.42
3.2 Shift of Governance for Local Pollution?
The first normative issue I dealt with was the relatively straightforward case
where the pollution crosses national borders. In that case, an argument in
favour of shifting powers to a higher legal order (hence: globalization of pollu-
tion leading to globalization of law) is not that difficult to make. But what if
the pollution is confined within national borders? There are still economic
justifications for shifting powers to a higher legal order (centralization and
eventually harmonization) even if the pollution problem remains local, but the
case is weaker. I discuss this from two separate angles.
41 Centralization should indeed not necessarily mean harmonization. An obvious

alternative is to shift powers (e.g. because of economies of scale advantages) to a
higher level but to have the central authority impose differentiated standards. See in
this respect inter alia Arcuri (2001, p. 37).
42 Hence, the fact that the UN dealt with the climate change problem in the well-
known Framework Convention on Climate Change has a strong economic justification
in this economies of scale argument.
3.2.1 Danger of a race to the bottom?

Above, I have already introduced the race to the bottom as one phenomenon
that could explain a lowering of environmental quality resulting from an
increased mobility of products, firms and pollutants. The resulting question
is to what extent this race to the bottom may justify a centralization of the
decision making, or at least a shift of the decision making to a higher legal
order.
The literature in this respect usually indicates that this all depends on
whether there is indeed empirical evidence of such a race to the bottom (which
would then justify centralization).43 As I have already indicated above,44 the
empirical evidence in that respect is not that clear. In cases where there would
be evidence of a so-called California effect (precisely the reverse of the race
to the bottom) there would not be any argument in favour of centralization. In
the other case (competing for lower environmental standards), the question
arises as to in which direction the empirical evidence goes. I have already indi-
cated that within the EU and the US evidence of such a race to pollution
havens is weak, even though after enlargement the EU may be confronted with
an environmental race to Eastern Europe (all depending upon whether the
Eastern European Member States have to comply with the acquis communau-
taire45 and whether the European Commission will also actually enforce the
stringent EU standards upon the new Member States).
The strongest empirical evidence rather comes from a race towards pollu-
tion havens in developing countries, which normatively therefore constitutes a
pretty strong argument in favour of a regulation of environmental standards in
developing countries. The difficulty in that particular case is, however, that a
high level of environmental protection may not correspond to the preferences
of citizens in low-income countries, who may prefer to give priority to
economic development.46 Forcing developing low-income countries to
comply with high levels of environmental protection may thus constitute a
type of undesirable paternalism from the north.
Recent empirical evidence shows that the stringency of environmental regu-
lation may at least have an influence on the ex ante decision of firms concern-
ing location. Moreover, Esty and Gerardin have shown that, even in cases
where there is no race to the bottom in the sense of a relocation to pollution
43 See in this respect also Chapter 3 by Van den Bergh in this volume.
44 See supra 2.3.
45 In most of the accession treaties, the new Member States were allowed large
transition periods before they had to apply the environmental directives to the full
extent. See for example treaty concerning the accession of the Republic of Bulgaria and
Romania to the European Union, 21 June 2005, Official Journal L 157.
46 Schäfer (2006, p. 120) and compare Dunoff (2007, p. 88).
havens, the fear of losing local industry to competing states with lower envi-
ronmental standards could lead to a so-called ‘regulatory chill’, preventing the
state from imposing more stringent environmental standards, because of the
fear of a relocation.47
An argument which has sometimes been advanced in the EU in this respect
is that environmental standards should be harmonized in order to create a level
playing field for industry. The argument is sometimes referred to as the need
for a ‘harmonization of marketing conditions’.48 Law and economics scholars
have, however, powerfully shown that such a harmonization of marketing
conditions cannot justify the need for harmonization of laws. The simple
reason is that marketing conditions always differ (if not, there would be no
trade) and, even if all legal rules were harmonized, marketing conditions
would still be different because of totally other reasons (like differences in
labour costs, tax level, unionization of the labour force, availability of natural
resources and so on).49 The only relevant question is therefore whether these
differences constitute a barrier to interstate trade, which is seldom the case.50
3.2.2 The trade–environment dispute

In fact, the mirror image of the race to the bottom (whereby states would
engage in an inefficient race towards lowering environmental standards) is the
danger that some nations may impose very stringent domestic environmental
standards. Since these will obviously also apply to imported products, they can
endanger free trade. It is the well-known conflict between free trade and envi-
ronmental concerns that has led to many regulations and publications both
within federal systems (US, EU) and at the international level (WTO law).51
The bottom line is that most regulatory solutions start from a distrust of
(member) states that use environmental reasons to, for example, prohibit the
47 See Esty and Geradin (2001).

48 In Europe an important goal of harmonization of laws has always been to
remove differences in national environmental legislation, assuming that these would
have a detrimental effect on the common market (see for example Jans and Vedder
(2008, pp. 4–5)). See for example the observations preceding directive 76/464 of 4 May
1976 (OJ L 29): ‘Whereas any disparity between the provisions on the discharge of
certain dangerous substances into the aquatic environment already applicable or in
preparation in the various Member States may create unequal conditions of competi-
tion and thus directly affect the functioning of the common market’.
49 See also Ogus (2004, pp. 177–9) and Revesz (1997).
50 See generally Esty (1999).
51 See Wirth (2007, p. 1). Under WTO law the issue is regulated by the agree-
ment on the application of Sanitary and Phytosanitary Measures, known as the SPS
Agreement. For a commentary see Scott (2007) and Van den Bossche and Prévost
(2005). And see especially Prévost (2009).
import of supposedly polluting products.52 The obvious danger that can

always arise in those situations is that the environmental reasoning will be
abused simply to favour local industry. Hence, many of the free trade agree-
ments start from the negative position, namely that they prohibit local protec-
tionism, even if it were for environmental reasons (although a genuine use of
the environmental argument to ban polluting products may under some
circumstances be accepted).53
Looking at the cases, legal doctrine has shown that the approaches seem to
differ somewhat between the EU, the US and the WTO level. To start with the
last: commentators have indicated that the tuna–dolphin case seems to indicate
that the free trade interests have won. Indeed the US lost a challenge initiated
by Mexico under the auspices of the predecessor of the WTO:54 the US ban on
Mexican tuna (which was legitimately caught in a way that killed air-breath-
ing dolphins) was considered an illegal discrimination against Mexican tuna.
This US embargo amounted to an attempt of the US to dictate Mexico’s envi-
ronmental policy, which could have serious disruptive effects on international
trade.55 The same seems to a large extent to be the case in US national law
where the Supreme Court has decided that state laws may not create barriers
to an interstate trade of waste.56
The EU approach, on the other hand, seems to be more flexible in the sense
that it allows more room to call on environmental arguments to justify protec-
tive measures.57 For example, in the Danish bottle case a recycling system
imposed by Denmark and clearly imposing costs on (also foreign) producers
(thus potentially restricting trade) was allowed, given the environmental inter-
ests the Danish wished to achieve with the particular recycling system.58
Whereas the Danish bottle measure was still non-discriminatory, the Walloon
52 Hence international obligations in the area of trade law are often considered
‘negative’ in the sense that they place constraints on the possibilities of national
governments to protect the environment or public health (Wirth 2007, p. 2).
53 For an interesting overview of the empirical and theoretical literature concern-
ing the environmental consequences of economic growth and international trade see
Copeland and Taylor (2004).
54 The General Agreement on Tariffs and Trade (GATT).
55 See Wirth (2007, pp. 2–3).
56 This has been based on the interpretation of the Commerce Clause, known as
the Dormant Commerce Clause, whereby the Supreme Court reasoned that State and
Local Laws had effectively created barriers to the interstate market in solid waste (see
for example Fort Gratiot Sanitary Landfill, Inc. v Mich. Dep’t of Natural Res., 504 U.S.
353 (1992); City of Philadelphia v New Jersey, 437 U.S. 617 (1978) and C&A
Carbone, Inc. v Town of Clarkstown, N.Y., 511 U.S. 383 (1994).
57 See generally on this case law van Calster (2002, pp. 482–5).
58 Case 302/86 Commission v Denmark, 1988 ECR 4607. See generally
Temmink (2000).
region in Belgium went a lot further by simply prohibiting the import of

foreign waste into the Walloon region. Even though this measure was clearly
discriminatory, the European Court of Justice (to the surprise of many
commentators) upheld the measure.59 It called on the so-called proximity prin-
ciple as a justification, arguing that the waste should in principle be treated or
recycled as close as possible to the place where it has been produced.60 Hence
the Walloon government was allowed to ban foreign waste even though the
measure was clearly discriminatory.
Commentators hold that in principle multilateral environmental agreements
should solve these problems.61 Moreover, others stress that one major problem
in all of these trade–environment conflicts is scientific uncertainty.62 Often
one country or legal system bans the import of particular products (such as
GMOs or beef with hormones) because of particular food safety or environ-
mental concerns, whereas the exporting country holds that these risks are
either non-existent or largely exaggerated so that the importing state is again
mainly abusing the environmental or health concern to ban imports, favouring
local industry. That the latter concern may always play a role will be no
surprise if one just remembers, for example, how quick the French were in
banning British beef during the BSE crisis, obviously favouring local produc-
ers.63
Commentators indicate that the key to solving this conflict is to evaluate the
validity of the local arguments (and especially the scientific uncertainty
surrounding it) on the basis of expert science. However, since many of the
recent conflicts have also shown that experts may strongly disagree as well,
one key issue is to determine the procedure by which these kinds of decisions
are taken (including, for example, whether one relies only on expert evidence
or potentially also on public participation).64 Another issue is how, after risks
have been appropriately assessed, one can find an agreement on the contents,
notwithstanding different preferences and differences in risk aversion and
perception.
59 Case C 2/90 Commission v Belgium, 1992 ECR I-4431.

60 This reasoning can of course be criticized from an economic perspective since
it does not allow for making use of economies of scale in waste treatment and more-
over may seriously limit competition. See for a critical analysis Von Wilmowsky
(1993) and Doherty (2004).
61 Compare Brunnée (2006). See also Wirth (2007, pp. 4–5).
62 See Wiener (2004) and Zander (2009).
63 See on these issues in further detail Vos (2000).
64 There is overwhelming psychological evidence showing that unfortunately
experts seem as prone to overconfidence as lay people, resulting in catastrophic
misjudgements by experts as well (see Slovic et al. (2000, pp. 109–10)).
Increasingly, commentators also ask the question whether, more specifi-

cally in issues relating to international trade, the WTO appellate body is the
appropriate forum to answer many of these rather complicated technical
issues.
3.3 Mobility of Products, Firms and Services
When dealing with the relationship between environmental problems and

globalization there are of course also a number of normative issues involved,
which to some extent go beyond the economic approach on which I have so
far largely relied. One of the consequences of an increased mobility of
polluters and pollutants may be that pollution is to a large extent exported to
communities who do not reap the benefits from the social activities that cause
the pollution. These kinds of issues are in the literature discussed under the
heading of ‘environmental justice’.65 Of course these complicated questions
do not generate simple answers, but these environmental justice concerns will
undoubtedly also (and rightly so) strongly determine the policy agenda
concerning the relationship between environmental pollution and globaliza-
tion. Just a few examples illustrate the relevance of these environmental
justice issues.
One obvious question is to what extent competition and economies of scale
can determine where to locate particular polluting industries. For example, in
the north–south dialogue an economic approach may well propose the ship-
ment of hazardous waste to the Sahara desert, where it could probably be
stored at lower costs than the dismantling in, say, Europe would cost.66
However, such a race to the bottom to a pollution haven understandably raises
important environmental justice concerns that may even trump the economic
arguments.67
Similar questions also arise with respect to the application of environmen-
tal standards in developing countries. The question arises for example as to
whether in the environmental protection–economic development trade-off
policy makers should always respect the preferences of the citizens. This
would lead to the conclusion that the inhabitants of, say, Togo would, given
their higher preference for economic development than for environmental
protection (and their lower income), probably not be prepared to pay the same
high price for environmental protection as the citizens of, for example,
Germany. A strict economic reasoning would thus lead to a differentiation of
65 See generally the contributions in Boyle and Anderson (1996) and Heringa
(2006).
66 For a critical approach see Van Der Linde (2000).
67 See generally on this issue Porter (1999).
environmental standards.68 However, justice notions may well, for example,

lead companies that export their activities from Germany to Togo to adopt the
same environmental standards in Togo as in Germany. Such a duty to export
domestic high-level environmental standards to developing countries is some-
times defended under the heading of corporate social responsibility.69
However, one has to be very careful about accepting these justice argu-
ments at face value, the problem being that they can lead to paternalism
whereby developing countries are forced to accept a higher level of environ-
mental protection on the basis of an interpretation of environmental justice in
the north. The result may be that prices of products and services in developing
countries in the south increase to an extent that does not correspond to their
preferences. The crucial question is therefore who defines the precise contents
of this environmental justice and whether these justice concerns can eventu-
ally set aside preferences of citizens.
4 INFLUENCE OF GLOBALIZATION ON (PRIVATE)

ENVIRONMENTAL LAW: POSITIVE ANALYSIS
Again I should stress that the many aspects of the relationship between glob-
alization and environmental pollution addressed in this chapter are strongly
related. For reasons of presentation I will now focus on some consequences of
globalization for (private) environmental law. With globalization in this partic-
ular context I refer both to economic globalization and to the fact that envi-
ronmental problems have assumed a more global nature, as I discussed in
Section 3. Given the focus of this book on the relationship between globaliza-
tion and private law I will try to focus on some consequences for private envi-
ronmental law, even though it may be clear that many of these consequences
apply to other aspects of environmental law as well.
4.1 Institutional
One undeniable consequence of globalization for environmental law is that a

shift has occurred towards more globalized lawmaking. Above I indicated that
the transboundary character of the pollution problem merits the search for a
level of governance by an institution with authority broad enough to cover the
pollution problem to be regulated. That is effectively what to a large extent has
68See Schäfer (2006) and Faure (2008).

69See on this notion Chapter 9 by Sutherland in this volume as well as
Nollkaemper (2006) and Ebbesson (2006).
happened. In the area of environmental law one can undoubtedly notice a trend
towards ‘institutional globalization’ in the sense of a shift of powers towards
higher legal orders. For example, in regional organizations like the EU one can
notice an increasing shift of competences, more particularly as far as environ-
mental law is concerned, towards the regional level. A recent research calcu-
lated that in the Netherlands approximately 66 per cent of Dutch
environmental law consists of EU environmental law.70 Hence, one simple
consequence of the shift of powers to a higher legal order (resulting from the
globalization of environmental problems) is that the national law of the nation
state is increasingly affected and influenced by law which emerges from
higher legal orders (in Europe, the EU).
Generally one can argue that the institutional globalization leads to a multi-
level governance (lawmaking at different levels of government). In addition to
environmental law generated by the nation state, one increasingly notices
lawmaking by:
• international organizations, to deal with transboundary pollution prob-

lems, for example, the UN for climate change, the International
Maritime Organization (IMO) for marine oil pollution and the Nuclear
Energy Agency (NEA) of the OECD (Organisation for Economic Co-
operation and Development) for nuclear liability
• regional organizations like the EU.71
A consequence of the shift of powers to these higher legal orders is that the
norms generated at these higher levels subsequently have to be transposed or
implemented (of course depending upon the national legal system) in national
law, which raises particular problems such as lacking compliance (with inter-
national environmental agreements)72 or lacking implementation (in the case
of EU law).73
4.2 Procedural
4.2.1 Integration of various legal spheres

The shift of powers to the higher legal orders mentioned above, as well as the
multi-level governance of environmental problems (referring to the fact that
norms are generated at the international, regional – for example, EU – and
70Douma et al. (2007a).

71See for a detailed account of the meanwhile very complicated and elaborated
European environmental law inter alia Jans and Vedder (2008).
72 See on compliance problems Faure and Lefevere (2004).
73 See Macrory (2005, 2006) reprinted in Macrory (2008, pp. 713–34).
national levels), leads to specific procedural issues and changes in the way
traditional environmental law is applied. One can argue that this globalization
has changed the way in which the judiciary deals with (private) environmen-
tal law.74 One consequence of the fact that standard-setting powers have often
been shifted to higher levels (international or regional) is that the norms gener-
ated at these higher levels will also influence the adjudication in particular
cases under national law.75 Since the national law that the judge is applying in
the private legal relationships may often emerge from the international level,
questions can arise with respect to the correct transposition or implementation
of these norms in national law.76 The traditional tasks of the judge’s judicial
review have hence changed to include also the compatibility of national law
with international (and European) legal rules.77
This raises important questions with respect to the application and validity
of these international norms in private legal relationships. Of course the extent
to which these international norms can and do play a role in private legal rela-
tionships may well strongly depend upon the nature of the international legal
norms and the legal system in which they are applied. However, increasingly
one can notice that (in various forms and to various extents) these international
norms also affect the adjudication by national judges of private legal relation-
ships. One example is the fact that environmental human rights play an
increasingly important role in national environmental law as well. The
European Court of Human Rights has repeatedly accepted that particularly
serious cases of environmental pollution can constitute a violation of the right
to life.78
4.2.2 Effect of international law on private law

Within this setting of a multi-level environmental governance, questions also
arise not only as to whether national judges are bound by higher legal norms
(within the framework of judicial review) but also as to the extent to which
74 See (more generally) Brown (2008) and Eckes (2008).

75 See on these changing tasks for the judiciary as a result of ‘the globalization
of law’ also Cassese (2005).
76 See on the duty to transpose environmental directives in the EU into national
law generally Jans and Vedder (2008, pp. 127–64).
77 See more generally on judicial review of administrative acts in the Member
States of the European Union and the United States the contributions in Seerden
(2007).
78 The European Court of Human Rights has broadened the application of art. 8
of the European Convention on Human Rights (protecting the right of private life and
family life) such that it now encompasses claims that are essentially claims of envi-
ronmental justice (see for example the case of Mrs. Lopez Ostra v Spain (9 December
1998)).
individuals (such as victims) can call on these higher legal norms or whether
they can be held against particular individuals (polluters). The history of envi-
ronmental human rights shows that these rights can provide individual victims
of environmental pollution with a direct right of action, even if not granted in
the national legal system.
The general rule in international law was that international legal rules only
bind states and not individuals. Therefore the District Court of Bonn could
decide that an individual victim (a farmer) of the Chernobyl incident could not
sue the Soviet Union for a violation of international law.79 There have been
situations, however, where norms of international law have played a role in
transboundary liability suits. An example is a suit brought by Dutch market
gardeners in the 1970s against the Mines de Potasse d’Alsace (MDPA) for
discharging too much salt into the river Rhine, so that they could not make use
of the water of the Rhine any more. In a remarkable judgment, the District
Court of Rotterdam held that, since no rule of national law could be found to
decide this case, it had to turn to unwritten international law and hence it
applied the principle that no state can use its territory for activities that cause
harm to another state.80 The District Court of Rotterdam thereby explicitly
refers to the well-known Trail Smelter Case, which applied the so-called good
neighbourliness principle.81 These cases show that the traditional boundaries
between international and national environmental law become increasingly
blurry, since in various ways the international level clearly influences adjudi-
cation at the national level as well.82
4.2.3 Effect on public participation

International environmental norms have also clearly affected the administra-
tion of environmental justice in national legal systems. One can easily name
various international conventions related to access to justice that provide
victims in national (member) states increasingly with rights to, for example,
challenge administrative decisions that may negatively affect their interests. In
this respect one should not merely point to conventions with respect to the
79 See for a discussion of this decision of the Civil Court of First Instance of
Bonn of 29 September 1987 Rest (1997, pp. 116–22) and Nollkaemper (1998, pp. 3–4).
80 District Court of Rotterdam, Nederlandse Jurisprudentie 1979, 113,
Netherlands Yearbook of International Law, 1980, volume 11, 326, and District Court
of Rotterdam, 16 December 1983, Nederlandse Jurisprudentie 1984, 341, Netherlands
Yearbook of International Law, 1984, volume 15, 471.
81 For a discussion of this Trail Smelter Arbitration see Bratspies and Miller
(2006) and Sands (2003, pp. 241–2 and pp. 318–19).
82 See Boyle (2007).
transboundary environmental impact assessment83 but also to the Aarhus

Convention with respect to public participation.84
Interestingly, some commentators point to the fact that the implementation
of some international norms and decisions (more particularly following from
the WTO appellate body) may endanger national rights with respect to public
participation. Whereas on the basis of national (in this case US) law victims
would enjoy broad rights of public participation, the (international) obligation
to comply with a decision of an international body can in some instances lead
to the duty of the state to implement these decisions, thereby infringing upon
rights of public participation which national law would normally grant the citi-
zens.85
4.2.4 Tendency toward consensual solutions?

Another interesting issue of a procedural nature is that one can increasingly
notice a tendency towards bargaining and alternative dispute resolution as a
solution to environmental conflicts. For example, with respect to the rivers
Rhine and Scheldt, international commissions have recently been given
important tasks to improve the quality of the water in those transboundary
rivers on the basis of a procedure of consultation and large stakeholder
involvement.86 As far as the river Rhine is concerned, this consensual
approach had a positive result in the sense that the target of getting the salmon
back into the river Rhine was achieved.87
Also at the international level one can notice that transboundary environ-
mental disputes are almost never solved by the judiciary. An environmental
chamber of the International Court of Justice, instituted in 1993, was never
used for that purpose and was therefore not reinstituted from 2006.88 The deci-
83 Such as the Convention on Environmental Impact Assessment in a

Transboundary Context (1991), referred to as the Espoo Convention. For a discussion
see Jacobs (2008).
84 The UNECE Aarhus Convention regulates access to environmental informa-
tion, public participation in decision making in environmental matters and access to
justice in environmental matters.
85 So Wirth (2007, pp. 5–6).
86 See for a description of these procedures Peeters (2008, pp. 192–224).
87 Internationale Kommission zum Schutz des Rheins (IKSR), Stromaufwärts.
Bilanz Aktionsprogramm Rheins, Koblenz, 2003, 31 pp., http://www.iksr.org/filead-
min/user_upload/Dokumente/apr_iksr_dt_foto.pdf.
88 On the website of the ICJ (consulted on 11 December 2007) one can read ‘With
respect to the formation of a chamber pursuant to article 26, par. 1, of the statute, it
should be noted that, in 1993, the court created a Chamber for Environmental Matters,
which was periodically reconstituted until 2006. In the chambers thirteen years of exis-
tence, however, no state ever requested that a case be dealt with by it. The court conse-
quently decided in 2006 not to hold elections for a bench for the said chamber.’
sions taken by the International Court of Justice (ICJ) and the International
Tribunal for the Law of the Sea (ITLOS) also show the reluctance of the
judges to come to firm decisions providing a final solution to the entitlements
of both parties. In many cases, the judges remarkably provide a few indica-
tions on how to resolve the dispute and then send the parties back to the nego-
tiation table.89
Hence, the shift towards a higher legal order and the globalization of envi-
ronmental problems has apparently also led to a different role of the judiciary
in resolving (transboundary) environmental disputes: rather than providing
firm and final entitlements (as is often the case in national environmental
disputes) in the transboundary context, the judiciary seems more cautious and
tends to stimulate bargaining between parties and consensual solutions.90
4.3 Contents
The question one could of course ask is whether the globalization of lawmak-
ing in the environmental area has also led to a convergence in the sense of a
harmonization of environmental law. Centralization in the sense of shifting
powers to a higher legal order should indeed not necessarily be equated with
harmonization. Theoretically the central authority could also decide to issue
differentiated environmental standards that take into account, for example,
differing local environmental conditions.91
However, the shift to a higher legal order (resulting from the globalization
of environmental pollution) has in almost all cases led to a harmonization of
lawmaking as well. Centralization has therefore in this environmental area
often in practice meant harmonization. Of course it may depend upon the
particular area and the international legal norm concerned whether there still
is room for differentiation. However, in most cases, whether the norm
89 See for example the so-called Southern Bluefin Tuna dispute which was dealt
with by the International Tribunal for the Law of the Sea (ITLOS) which prescribed in
a provisional measure inter alia ‘Australia, Japan and New Zealand should resume
negotiations without delay with a view to reaching agreements on measures for the
conservation and management of Southern Bluefin Tuna’ (for details see Romano,
2000, pp. 207–8).
90 Also in the Gabcikovo–Nagymaros dispute the International Court of Justice
held that the parties should ‘find an agreed solution that takes account of the objectives
of the treaty, which must be pursued in a joint and integrated way, as well as the norms
of international environmental law and the principles of the law of international water
courses’ (case concerning the Gabcikovo–Nagymaros project (1997) ICJ Reports 7,
para. 140–41). For a discussion see Sands (2003, pp. 469–77) and Romano (2000, pp.
246–60).
91 See inter alia Arcuri (2001).
emanates from an international organization (such as the UN, IMO,92 NEA93)

or from a regional one (EU) there may be some scope left for differentiation.94
However, especially at the EU level, one increasingly gets the impression that
the scope for differentiation is relatively limited and that the policy objective
is to strive for a convergence of norms.95
Even though convergence through harmonization of legal rules may often
be the policy objective, that does of course not mean that that objective can
always be realized. In many cases European directives, for example, will
provide a framework that has to be implemented in national Member States.
Given the large differences in legal cultures of the Member States (and also in
legal language), even one single text may lead to different interpretations and
to differentiation between Member States.96
5 INFLUENCE OF GLOBALIZATION ON (PRIVATE)

ENVIRONMENTAL LAW: NORMATIVE ANALYSIS
I will now address the same issues that were discussed from a positive
perspective in Section 4 in a more normative analysis. Again, the aim is not to
provide a final answer on how to solve the challenges identified in Section 4,
but rather to provide a framework within which these questions could be
addressed. To an important extent this will again rely on the economic analy-
sis of law, although some other approaches may be used as well.
5.1 Institutional
5.1.1 Lawmaking beyond the nation state

In Section 4 we addressed a general feature of the relationship between
92 International Maritime Organization.

93 Nuclear Energy Agency (of the OECD).
94 For example the international conventions with respect to the civil liability for
the operator of a nuclear power plant provide the broad scope of the financial compen-
sation but leave some freedom to the states to determine (within particular limits) the
precise amounts. For details see Faure and Van den Borre (2008, pp. 219–87).
95 However, also there one should be careful: in the early years European envi-
ronmental policy was undoubtedly striving for a harmonization of national laws in
order to avoid ‘distortions of competition’ (see Jans and Vedder, 2008, pp. 4–5).
However, nowadays unilateral measures by Member States to protect their own envi-
ronment remain, under strict conditions, still a possibility (see Van Calster, 2002, p.
484).
96 See for a particularly strong argument that harmonization and convergence of
legal rules within Europe would be impossible Legrand (2008, pp. 13–40).
globalization and environmental law, namely that powers of lawmaking are

increasingly shifted, in the words of Smits, ‘beyond the nation state’.97 One
can notice shifts to international organizations (like the UN, IMO or NEA, but
many others could be mentioned as well) or to regional organizations such as
the EU. It is no surprise that the further away from the citizens concerned the
decision making takes place, the greater the risk is that a countervailing power,
taking into account the interests of the citizens, may be lacking. The literature
in many domains, but also in the environmental area, has held that the shift of
powers to higher legal orders (in other words centralization) may lead to a few
of the questions central to this entire volume:
• Legitimacy: to what extent do international organizations have democ-

ratic legitimacy for their decisions?98 That problem will more particu-
larly emerge when environmental standards are set not by international
organizations but by private (often industry related) organizations as
well.
• Accountability: to what extent can politicians or bureaucrats that take
decisions on environmental standards in international or regional orga-
nizations be held accountable for their decisions, for example by parlia-
ments or other institutions representing the voice of the citizens?99
• Transparency: to what extent does decision making at the international
or regional level take place in a transparent way, so that citizens can
verify how a particular decision concerning an environmental standard
was taken, which interests have played a role and why the decision was
made to weigh the interests involved in a particular way, leading to the
environmental standard concerned?
5.1.2 Victim and environmental protection doubtful

Many examples have been advanced in the literature showing that in the envi-
ronmental area international organizations often take decisions where the
legitimacy is doubtful, accountability is lacking and a transparency on how the
decision was made is largely absent. Examples can be found in the area of the
liability of the licensee of a nuclear power plant for a nuclear accident and the
liability of the tanker owner for marine oil pollution. In both cases, interna-
tional organizations (the IMO in the maritime area; the NEA and the
97 See Chapter 1 by Smits in this volume and see also Sand (2006). See also
Hooghe and Marks (2003). See on this concept also Jansen and Michaels (2008).
98 See for an analysis of the legitimacy deficit in the EU as well as for methods
to increase the democratic accountability in case of multi-level (environmental) regu-
lation Follesdal (2008).
99 See generally on accountability (of legal institutions) Bovens (2007).
International Atomic Energy Agency (IAEA) in the nuclear field) created

international conventions in the 1960s which are largely beneficial for the
particular industries: liability is strict, channelled to the operator or the tanker
owner (thus excluding the liability of other parties potentially contributing to
the risk).100 Most importantly: the liability is limited by imposing a financial
cap on the damages due by the potential injurer. This deviates from the normal
rules of tort law and can thus constitute an important benefit (in fact a subsidy)
to the industry concerned. Legal commentators have therefore held that in both
areas treaties were created that largely benefited the interests of industry and
only to a very limited extent addressed environmental concerns or concerns of
victims.101
The reason for this imbalance has equally been indicated in the literature:
in the lawmaking process within these international organizations there was
(at least at the time when they were being created) a lack of a countervailing
power representing the interests, for example, of victims or of the environment
as such. Given the superior expertise of the regulated industries involved (the
nuclear and the shipping industry respectively), it is clear that they could
easily influence (via their national representatives, present at the negotiation
table) the outcome of the treaties. It is striking in that respect that the outcome
of the negotiations concerning the nuclear liability conventions is even more
favourable for industry than the outcome in the civil liability convention with
respect to marine oil pollution (regulating the liability of tanker owners). In the
nuclear liability field, a countervailing power (for example, representing
potential victims or non-nuclearized states) was absent, whereas in the
maritime field the interests of the various states concerned do not all go in the
same direction, since some states may be primarily maritime states (thus
having a large interest in protecting the maritime industry) whereas others may
be mostly the coastal states potentially affected by marine pollution.
Moreover, in the maritime area not only the interest of the maritime industry
is involved but also that of the oil industry, to which the maritime industry
would like to shift part of the responsibility.102
It is also striking that, for example, where decisions concerning the liabil-
ity in the same areas were not taken by international organizations but at a
national level, the liability of the nuclear operator and the tanker owner respec-
tively was surprisingly higher. A typical example in that respect is of course
the case of the US. The US was always actively involved in negotiating the
100 See for the nuclear accidents Trebilcock and Winter (1997) and for marine oil
pollution Boyd (2002, 2003), Wang (2007), Verheij (2007) and Hendrickx (2007).
101 See the sources quoted in the previous footnote.
102 See on this struggle between the different interests in the coming into being
of the maritime liability conventions Wang (2007, pp. 197–241).
international conventions, more particularly because this would serve its inter-
ests.103
Originally, this also provided a limitation on the liability of the operator of
the nuclear power plant, but later the regime changed, as a result of which the
Price-Anderson Act is much more favourable today than the international
regime: substantially higher amounts for compensation are generated (roughly
ten billion US dollars in the US regime versus one billion in the international
regime) and public funding in the US regime is totally excluded.104 A similar
story could be told as far as the liability for the oil pollution risk is concerned:
instead of joining the international conventions, the US created the Oil
Pollution Act which, again, is much more favourable (in the sense of no limits
on the liability and higher amounts of compensation) than the international
regime.105
5.1.3 Green treaties or protectionism?

These examples show (and many others could be provided) that shifting
powers to higher legal orders may lead to problems of accountability and
transparency, thus allowing a greater influence of industrial interests, leading
to a lower quality environmental standard. However, in some cases the reverse
may be true, in the sense that industrial lobbying may lead to the imposition
of inefficiently stringent environmental standards. That is the case more
particularly when standards are used to create barriers to entry, thus limiting
competition on the market. Typical examples of this protectionism can be
found in the EU, where industry within ‘green’ Member States may typically
lobby in favour of the imposition of stringent (but sometimes inefficient) stan-
dards at the EU level. The reason is that they already have to comply with
stringent domestic environmental standards and may thus have an interest in
imposing those at the EU-wide level as well. It may give the opportunity to
erect barriers to entry, for example to southern competitors who are probably
not able (and may not need) these stringent environmental standards.106
Similar problems may also arise at the national level. In most legal systems
the executive has the treaty-making power. A shift to a higher level of gover-
nance (more particularly to international organizations) can thus at the national
level lead to a more limited role of parliaments. In some cases they merely have
the power to confirm or reject the treaty negotiated by the executive but not to
103 The US strongly lobbied in favour of the Paris Convention; at the same time
the US created for the nuclear risk in 1957 the Price-Anderson Act (see for details Van
den Borre (2007)).
104 See Faure and Van den Borre (2008, pp. 219–87).
105 Wang (2007, pp. 197–241).
106 See Faure (1998, pp. 169–75).
influence its contents.107 This general problem of the lack of democratic legit-
imacy of international lawmaking has of course often been mentioned and, as
was just shown, plays a role in environmental cases as well.108
5.1.4 Limited public participation

The current shift of powers to the higher legal order may lead to limited public
participation for the citizens concerned in various ways. First, international
organizations may not have involvement of the civil society (like environ-
mental NGOs) in the decision-making process to the same extent as would be
the case at the national level. In this respect the situation has of course largely
changed compared with the 1960s, when the conventions concerning nuclear
liability and marine oil pollution (referred to above) were drafted. Many inter-
national organizations now allow for a large stakeholder involvement in the
decision-making process,109 but important differences still exist between the
various international regimes concerned. Second, the influence of civil society
is as such, as a result of the shift to a higher legal order, also limited for the
simple reason that there is less to decide at the local level. One notices that,
for example, when within national Member States decisions have to be taken
on environmental standards, the debate often ends with the statement by the
executive that these are international obligations that have to be implemented
at the national (local) level. This limits the room for democratic control by
parliament, but also for public participation or NGO involvement when setting
these standards at the local level.
To an important extent, the shift of powers to the higher legal order (even
though necessary as far as transboundary pollution is concerned) may thus not
be totally unproblematic. To the extent that there is a lack of transparency and
accountability, industrial interest groups may have more possibilities for
successful lobbying and it is easier (given the lack of transparency) for politi-
cians to provide what the interest groups demand. This may inevitably have a
negative consequence for the quality of environmental standards.
107 See on these challenges to accountability and democracy resulting from

multi-level regulation Wessel and Wouters (2008).
108 Also in US legal doctrine the dominant position of the president in negotiat-
ing international treaties and the subordinate function of Congress has been criticized
(see Wirth, 2004, p. 399).
109 This increasing attention to stakeholder involvement and to the role of NGOs
corresponds with a shift in the way (environmental) treaties are viewed, which is char-
acterized as a shift from the sovereignty approach towards a managerial approach. See
in this respect Chayes and Chayes (1995). This is a shift that one can also increasingly
notice in international environmental agreements. See Faure and Lefevere (2004, pp.
163–80).
5.1.5 Shift problematic

It seems as if this creates a dilemma: the normative answer to these problems
is obviously not to shift back powers to local institutions. Indeed, above I have
indicated that to the extent that environmental problems cross national borders
it makes absolute sense to shift powers to a higher legal order.110 The well-
known saying ‘global problems need global solutions’ makes some sense in
this respect. However, it was equally indicated that for a variety of reasons
(mostly because it serves the interests of the industry involved and perhaps
some bureaucrats in regional or international organizations as well) more
powers are shifted to the international level than would be warranted on
economic grounds. This is more particularly the case when powers are shifted
to a higher level for pollution problems whose consequences are confined
within the borders of the Member States.
The race to the bottom and the ‘harmonization of marketing conditions’ are
then advanced as reasons for shifting powers to higher legal orders, but I indi-
cated that these reasons are both theoretically and empirically very weak.111
That may be a reason to be slightly more careful with shifting lawmaking
powers to higher levels when transboundary pollution is not at stake. Given
the danger of a lack of transparency and a strong influence of industrial inter-
est groups at the international level, it may constitute yet another argument in
favour of decentralization where centralization is not absolutely necessary on
economic grounds.112 But even in cases where the transboundary character of
the pollution problems merits a shift to a higher legal order, problems may still
arise, especially when the civil society has not been involved in the decision
making. This is more particularly a problem since, while decision making can
take place at a higher legal order, implementation has ultimately to take place
at the local level (following yet another popular one-liner ‘think globally, act
locally’).
5.1.6 Possible remedies

There may be obvious remedies to these problems (although not simple to
implement in practice):
• One remedy would consist of seriously rethinking the shift of powers to

higher legal orders and limiting this to the cases where centralization is
needed on economic grounds (more particularly when there is a trans-
boundary externality or empirical proof of a race to the bottom).
110 See supra Section 3.1.

111 See supra 3.2.
112 A similar argument is also made by Van den Bergh in Chapter 3 of this
volume.
• Second, one could work towards increased transparency at the interna-

tional level as well.113 This would in public choice terms increase the
costs of lobbying by interest groups. If the public at large can (as a result
of increased transparency) notice that politicians are in fact favouring
interest groups, lobbying becomes more difficult and there is a greater
likelihood that environmental standards are set in the public interest.
• Third, it is obvious that the involvement of the civil society and public
participation in general (also at the international level) can increase the
quality of the decision making. By allowing in environmental NGOs
with strong commitment and expertise in the environmental field, a seri-
ous counterweight against lobbying by industry can be provided.
These normative solutions are obviously not new. One can now increas-
ingly notice that in more recent environmental treaty regimes there is indeed
more transparency and a greater stakeholder involvement. It is the first
remedy, implying that when pollution problems do not cross national borders
there may be strong arguments in favour of decentralization rather than
centralization, that seems to be the most difficult one to be implemented in
practice. This may, to some extent, be due to the fact that bureaucrats in inter-
national organizations (and regional ones like the EU) of course also have a
strong interest in continuing the shift of powers to higher legal orders since it
confirms their authority and power. To a large extent the fact that more central-
ization takes place than is strictly needed (for example, in Europe) can be
explained by the strong powers of the bureaucracy involved.
5.2 Procedural
5.2.1 Distinction international–national becomes blurry

Above, we have already indicated that one consequence of the ‘globalization
of law’ is that norms set by regional or international organizations increasingly
play a role in private legal disputes in national states as well. Moreover, the
national judge will often be called to examine whether national law corre-
sponds with these supranational norms.114 Hence, also the contents of judicial
review have changed.
There seems to be an interesting shift of paradigm in the relationship
between national and international law in the sense that the old dogma that
international law is only binding upon the national states (in a broad sense) is
changing as well. Above we referred to the decision of the District Court of
113 See Prechal and de Leeuw (2007, 2008).

114 See on these issues also Whytock (2007) who refers to the governance of
transnational activity by domestic courts as ‘transnational judicial governance’.
Bonn, refusing to apply international law in a dispute between a German

farmer and the Soviet Union. However, the District Court of Rotterdam had no
difficulty in calling on international law in a private legal dispute between
market gardeners in the Netherlands and the Alsacian salt mines in France.
Perhaps this constitutes a paradigm shift whereby the worlds of national and
international law are no longer so strongly separated.115 The result would be
that international law would not only play a role after appropriate transposi-
tion in member states, but that under certain circumstances citizens may also
directly call on (self-execution) provisions in international legal treaties.116
5.2.2 Successful bargaining?

An interesting tendency described above is that international disputes are
increasingly settled through bargaining and negotiations rather than by allo-
cating firm and definite entitlements. There may be a strong economic logic
for this: the judiciary may well lack the necessary information to determine
entitlements in a final way. Moreover, there is a likelihood that when entitle-
ments are wrongly allocated, negotiations will (as a result of strategic behav-
iour by states) not be possible and inefficiencies may emerge.
Several examples were provided above showing that consensual solutions
are increasingly used to solve international disputes. Also the judiciary seems
in many cases to send the parties back to the negotiation table, merely provid-
ing them with some indications on how to solve the dispute. That may thus be
a strategy to facilitate efficient bargaining.117
At first blush, there seems to be some empirical evidence that these consen-
sual solutions are, at least as far as the resolution of transboundary environ-
mental pollution is concerned, effective.118 Interestingly, there is some
empirical evidence that the consensual solution chosen in the river Rhine case
(through the Rhine Commission) generated better ecological results than a
regulatory (command and control) approach followed in the Great Lakes case
in the US.119
However, one still has to be careful: the mere fact that there now are a few
examples where the consensual solution may have worked should not imme-
diately lead to a generalization of conclusions. One problem that still remains
115 That is a claim inter alia made by Nollkaemper (2008).

116 For a more detailed account of these developments see Boyle (2006, p. 559)
and Nollkaemper (1998, pp. 3–11).
117 Leading to efficient solutions as proposed by Coase (1960, pp. 1–44). See also
Ayres and Talley (1995), Farrell (1987) and Johnston (1995).
118 See Peeters (2008, pp. 192–224).
119 Verwey (2000, pp. 1007–54).
is that these ‘softer’ consensual solutions may lack enforcement teeth in case
of non-compliance.120
5.3 Contents: Differentiation of Standards
The policy logic so far has always been that, since transboundary environ-
mental problems require transboundary solutions, a centralization of decision
making is needed. Moreover, the centralization has in practice almost always
automatically been equated with a harmonization of environmental standards.
This leads to the normative question regarding to what extent a total conver-
gence of environmental standards is indeed desirable. There is an important
strand of law and economics literature121 holding that (in the absence of trans-
boundary externalities and empirical evidence of a race to the bottom) there
should still be room for divergence. The arguments in favour of divergence, in
the environmental field implying a differentiation of environmental standards,
can be based on a variety of grounds. First of all, with respect to environmen-
tal problems, location specific circumstances are always different. Hence,
there can be a strong technical reason to adapt standards to varying location
specific circumstances. Second, the legal cultures are also strongly divergent.
Many have, moreover, indicated that even if one were to harmonize law
formally this would not necessarily lead to a convergence in practice. The
reason is that even a similar wording (for example, imposed by a European
directive) may be differently interpreted in different (member) states, taking
into account their own legal culture.122
Moreover, harmonization of law in practice often means that particular
standards representing the legal cultural values of a majority (or of the
strongest players) will be imposed. In practice, this may mean that more
particularly in a globalizing world harmonization would not respect differing
values in the multicultural society.
On the contrary, many legal and economic scholars have pointed to the
advantages of differentiation. This could lead to competition between legal
orders. This competition can have the advantage that learning processes occur
whereby legislators can benefit from various experiences in different legal
systems.123 That benefit would be lost if the monopoly of one harmonized
120 See on potential problems with negotiated (environmental) agreements gener-

ally Johnston (2000) and Grimeaud (2004).
121 Well represented and summarized in this volume in Chapter 3 by Roger van
den Bergh.
122 See in this respect also Van Dam (2007, pp. 53–76).
123 This point is strongly made in many publications by Van den Bergh. See inter
alia Van den Bergh (2000) and Chapter 3 by Van den Bergh in this volume.
legal system were imposed. A similar argument in favour of divergence has

been strongly presented by Smits in many publications. He argues in favour of
diversity, especially in the area of private law, maintaining that parties should
(more particularly in contract law) have the possibility to choose from a vari-
ety of legal solutions.124
The conclusion is therefore straightforward: from this economic but also
legal perspective globalization of law should not necessarily lead to a global-
ization of (environmental) standards but could lead to a differentiation, taking
into account differing preferences, cultures and location specific circum-
stances.
6 CONTRIBUTION OF ENVIRONMENTAL LAW TO THE

GLOBALIZATION DEBATE
6.1 Environmental Issues that Shape the Globalization Debate
As a summary, and by way of conclusion, an attempt can be made to indicate

how environmental problems contribute to the debate on the influence of glob-
alization on private law.
One can certainly argue that environmental problems have played an
important role in that debate, since many of the legal issues related to global-
ization more particularly play a role with regard to environmental problems.
One example is the issue of multi-level governance, that is, the question of at
what level of governance decisions should be taken and how these various
levels mutually interact. Given the inherent transboundary character of envi-
ronmental problems, environmental issues have certainly influenced the
debate on the optimal level of decision making.
Another area where environmental issues have shaped the debate is the
well-known question (that has led to an abundant literature) of how free trade
can be reconciled with environmental concerns.
6.2 Influence of Globalization of Environmental Private Law
It is also not difficult to state that globalization has had a clear influence on
private legal relationships, including in the environmental area. One can for
example point to international conventions (like Aarhus) that promote envi-
ronmental rights, access to justice and information, and public participation.
These are undoubtedly examples of international conventions that have had a
124 Smits (1998, p. 328).

positive influence on public participation. To the extent that these international

conventions are regarded as an element of globalization, this could be judged
a positive result.
On the other hand, I have equally indicated that many developments result-
ing from this globalization (more particularly the shift to higher legal orders)
undoubtedly also have a negative effect as far as the involvement of civil soci-
ety is concerned, since decision making takes place further away from the citi-
zens concerned. The role of national parliaments or local authorities is then
often reduced to implementing international obligations. Here, one can
undoubtedly argue that the increasing shift to higher legal orders (resulting
from globalization) has led to problems of accountability, transparency and
democratic legitimacy of (environmental) decision making.
Another aspect that environmentalists would undoubtedly consider a nega-
tive consequence of globalization is that local (state) laws protecting the envi-
ronment can in some cases be set aside for violating rules of free trade. It is a
well-known criticism of WTO law by anti-globalists. Also, the interpretation
of the US Commerce Clause by the Supreme Court shows that trade concerns
often win over environmental concerns. Only the case law of the European
Court of Justice seems to give more room to environmental concerns, even
when this limits free trade in a discriminatory way. However, this case law
certainly does not go undisputed.
6.3 Many Unresolved Issues…
A brief look at the way in which globalization and environmental legal issues
interrelate shows that there are many unresolved issues that need further atten-
tion. In that sense the environmental issues can help to shape the research
agenda. To mention just a few:
• There is undoubtedly a need to increase the transparency of decision

making and the accountability of international institutions responsible
for drafting international environmental standards. Important steps have
already been taken in this respect (more particularly in the climate
change regime), but a lot still remains to be improved.
• More generally, the accountability and democratic legitimacy of foreign
policy affecting environmental issues needs to be increased. The
involvement of stakeholders and parliament at an early stage of the deci-
sion making needs to be improved.
• The level of the decision making in a multi-level governance setting
needs to be rethought: there seems to be too large a shift of powers to
the regional/international level, including in cases where this may not be
strictly needed. Possibilities of combining centralization (where this is
needed) on the one hand with the setting of differentiated norms on the
other hand also need to be further explored.
• In order to increase the respect for the rule of law and the accountabil-
ity of decision-makers at the international level, access to justice, public
participation and the involvement of civil society could be further
improved.
• The framework for striking the balance between free trade and environ-
mental concerns also merits further research. This is particularly the
case when there is scientific uncertainty, which raises the question of
who shall take decisions on the extent to which environmental concerns
can trump free trade. The question also arises regarding to what extent
these decisions can/should only be based on scientific evidence and to
what extent public participation is needed as well.
6.4 … Need Multidisciplinary Research!
It may be clear that answering some of these questions goes beyond the scope of
legal research and may need the involvement of other disciplines. For example:
• Economists may be needed to assist in determining how to set efficient

standards and to determine what is (within a multi-level governance
setting) an optimal level of decision making.
• Social scientists are needed to assist in explaining how an involvement
of civil society, public participation and better access to justice can be
guaranteed, but also how standards can be set in a multicultural setting,
respecting differences in preferences and (legal) cultures.
• Political scientists have important insights into how to provide a coun-
tervailing power to industrial lobbying, how the transparency of the
decision-making processes at the international level can be increased,
and in general how decision making concerning environmental stan-
dards can be done in the public interest.
In sum, in order to answer some of the challenges posed by the relationship

between globalization and environmental problems, undoubtedly a multidisci-
plinary approach is needed.
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13. The rule of law and judicial activism:
obstacles for shaping the law to meet
the demands of a civilized society,
particularly in relation to climate
change?
Jaap Spier*
There was a time when it was thought almost indecent to suggest that judges make
law – they only declare it. Those with a taste for fairy tales seem to have thought
that in some Aladdin’s cave there is hidden the Common Law in all its spendour and
that on a judge’s appointment there descends on him knowledge of the magic words
Open Sesame. Bad decisions are given when the judge has muddled the pass word
and the wrong door opens. But we don’t believe in fairy tales any more.1
‘It [the rule of law] may well have become just another of those self-congratulatory
rhetorical devices that grace the public utterances of Anglo-American politicians.
No intellectual effort need therefore be wasted on this bit of ruling-class chatter.’2
In theory … one could construct a model of judicial activism which accorded top
judges … complete liberty to decide what they wanted to decide. … At the other
end of the spectrum one could imagine a model which gives judges no leeway what-
soever to use their own discretion and which effectively requires them to serve as
electronic calculators … Between these two extremes – a lottery machine on the one
hand and a calculator on the other – there are innumerable intermediate positions.
What differentiates them is the extent to which they reflect a preparedness on the
part of the judges to expound – and justify – their personal view of the law.3
* Advocate-General in the Supreme Court of the Netherlands, honorary

Professor at the University of Maastricht.
1 Reid (1972, p. 22).
2 Judih Shklar, quoted by Lord Bingham of Cornhill in a speech given at the
Faculty of Law, University of Cambridge, on 16 November 2006, www.cpl.cam.uk/
past_activities/ the_rule_of_law_text_transript.php.
3 Dickson (2007, pp. 369–70).
426
The rule of law and judicial activism 427
1 THE NEMESIS OF CLIMATE CHANGE

At the conference at Stellenbosch in December 2008, I had the honour to talk
about the evil climate change is going to cause if we stick to business as usual.
My assessment was – and still is – that there is literally no hope that politicians
and enterprises are going to change course in due time.4 This was obvious – if
one is prepared to read newspapers, say once a month – and it is has become
more and more clear. True, the topic is on the agenda. Often rather vague
promises to cut emissions after 2020 or preferably as early as 2050 are launched.
They are of little, if any, avail. First, quite a lot must be done right now. And
those who steer the wheel these days will no longer be in power in 2050; not
even in 2020. So, how on earth can they decide what is going to happen then?
Western leaders harp more and more on the tune that they are prepared to
take bold steps as long as developing countries will do the same. The latter are
reluctant to do so. Understandably. After all, they did not cause the problem.
Even today their emissions per capita are considerably less than those of most
western countries. And, last but not least, a (often significant) part of their
population is appallingly poor. The leaders of developing countries refuse to
sacrifice their poor, and they are right.
But what then about the western claim that ‘different speeds’ would create
a competitive advantage for the developing countries? The argument is not
necessarily invalid, but not sincere. It overlooks the fact that the western world
has benefited from a competitive advantage for decades because of its indus-
trial development in times of low oil prices, not to speak of the unjustified
gains of its colonial past and other evil done to major parts of Asia and Africa.5
2 A CALL FOR LEGAL ACTIVISM IN THE FIELD OF

CLIMATE CHANGE?
A legal approach might serve as a – and arguably is the most promising, if not
only – way to get things on the move. Yet, the argument harvests a storm of
fierce criticism: that sounds like a call for judicial activism … Could one think
of anything worse?
4 It is happily not entirely trouble and affliction. A very few states (such as
Sweden; see The Guardian 8 February 2006) and some states of the US (such as
California, Texas, Florida and Maine; see an interview with Lester Brown, Green
Futures, July 2008 p. 31) have very ambitious plans in the much shorter term. The EU
has adopted plans which aim to reduce emissions quite considerably in the mid-long
and even more in the long term. Promising as this may be, it is too late and too little.
5 See, inter alia Farber (2008, pp. 377 ff.).
Some learned senior judges strongly fulminate against judicial activism.

The Australian High Court Justice Dyson Heydon may serve as an example.
With apparent agreement he quotes Lord Camden in a case from 1765 (Entick
v Carrington): ‘If it is law, it will be found in our books. If it is not to be found
there, it is no law.’ Or, in his own words: ‘Judges are appointed to administer
the law, not elected to change or undermine it.’6 Further down, he writes:
Even in the short life of judicial activism in this country [Australia], there have been
extraordinary instances of the freaks of fortune and the instability of judicial
grandeur, and many brave new developments have already become entombed in the
urns and sepulchres of mortality.7
3 JUDICIAL ACTIVISM: A BRIEF INTRODUCTION

The term judicial activism begs more questions than it answers.8
Before addressing this intriguing topic, a few words about the ambiguous
meaning of judicial activism.9 According to the current Chief Justice of New
Zealand (Dame Sian Elias), there is no ‘working definition’.10 In Dickson’s
view, judicial activism means ‘an approach to adjudication which seeks to
locate the particular decision in the context of a wider legal framework, point-
ing out what the consequences of the decision are likely to be for fact situa-
tions which are different from those currently before the court’.11 Devlin
describes ‘activist lawmaking’ as ‘the business of keeping pace with change in
the consensus’.12
6 That seemingly is also the view of the brilliant conservative Justice Scalia.
According to the Boston Globe (29 September 2004) at a talk at Harvard’s Kennedy
School of Government, he denied that the Constitution is a living document: ‘It is
blindingly clear that judges have no better capacity than the rest of us to determine
what is moral.’A similar point was made by Jim Allen, quoted by Harris (2007, p. 288).
I cannot escape from the impression that they overestimate many members of society
and underestimate judges (of the superior courts).
7 www.://quadrant.org.au/php/article_view.php?article_id=277.
8 Roach (2007, p. 72).
9 See about a related topic (the rule of law) Lord Bingham’s eloquent and well
considered ‘The Rule of Law’, o.c.; Kniec (2004, pp. 1463 ff.). Mark Tushnet (2007,
p. 415) observes that the term is ‘irresolubly ambiguous’; on p. 417 he mentions qual-
ifications by others. Harris (2007, p. 273) suggests the more neutral term ‘judicial
creativity’.
10 Quoted by Harris (2007, p. 298).
11 O.c. p. 370.
12 Quoted by Corder (2007, p. 323).
Posner distinguishes between two interpretations: enlarging judicial power

at the expense of the power of the other branches of government and ‘the
legalist conceit that this technique for deciding cases minimizes judicial power
by transferring much of that power back, as it were, to the officials’. He rightly
criticizes the ‘legalist’ view. Literal interpretation would often have awkward
results.13
I tend to believe that it is not necessarily either of the two. Whether judges
like it or not,14 they often make – in a sense – political choices,15 but rarely ‘at
the expense of the government’. Those choices have nothing to do with the
views of a political party; they rarely interfere in the political debate or touch
upon highly political issues. But judges often have an option to give a verdict
for the plaintiff or the defendant in cases where the arguments for both views
are more or less in balance. They may (and often will) try to hide that by legal
techniques, vague or pertinent phraseology,16 but the fact remains that a differ-
ent choice would have been possible. Even if the choice is just about ‘equity’
(which party ‘deserves’ to win), it remains a choice.
Others, such as the learned Justice Heydon, have described ‘judicial
activism’ as ‘using judicial power for a purpose other than for which it was
granted’.17 That occasionally happens, and as a general rule it may well be
wrong. But not necessarily so, as I hope to show below.
Before going into the heart of the matter, it may be useful to point out that
recent research reveals that, contrary to what one might expect, conservative
judges may well be more activist than liberal judges are.18 Not surprisingly, so
13 Posner (2008, p. 287).

14 So, with due respect, I dare to challenge Posner’s view that ‘Acknowledging
that they were making political choices would also undermine their [i.e.: the judges’]
confidence in the soundness of their decisions’ (p. 289).
15 See also McHugh’s speech at the Australian Bar Association Conference,
London, 5 July 1998: McHugh (1998), www.hcourt.gov.au/speeches/
mchughj_london1.htm. This happens, e.g., in cases where several conflicting (human)
rights are at stake; see about this important topic many contributions in Brems (2008).
The mere fact that under the ECHR national states (and courts) often have a wide
margin of appreciation is telling; see e.g. Ducoulombier (2008, pp. 217 ff.).
16 See e.g. Van den Brink (2008, p. 40).
17 O.c.
18 See Ringhand (2007), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=
765445. In an editorial ‘Psst … Justice Scalia … You Know, You’re an Activist Judge,
Too’, the New York Times (19 April 2005) points out that Justice Scalia ‘has been more
than willing to ignore the Constitution’s plain language, and has a knack for coming
out on the conservative side in cases with an ideological bent. The conservative parti-
sans leading the war on activist judges are just as inconsistent: they like judicial
activism just fine when it advances their own agendas.’ It adds that the conservative
majority regularly overturns laws passed by Congress. According to Polak (member of
called ‘activist judgments’ are criticized by advocates of both the left and the
right wing.19
Finally, one should bear in mind that ‘activists’ can avoid criticism by play-
ing the card of belonging to the legalist camp.20 So, we should not be fixated
on the way judgments are phrased or ‘sold’.
4 A CLOSER LOOK
Over the centuries, the law (legislation and case law alike) has developed. The
former President of the Belgian Supreme Court Verougstraete put it as
follows:21
L’apport de la Cour dans l’évolution et l’harmonisation du droit est plus que jamais
à l’avant-plan des préoccupations de la Cour. Ce n’est pas qu’elle rêve d’une ‘justo-
cratie’ ou d’un ‘gouvernement des juges’. Mais les circonstances ont forcé la Cour
à être audacieuse et par ailleurs l’émulation d’autres institutions ne peut être sous-
estimée. …
Une complexité excessive des normes légales est le résultat d’efforts héroïques
de donner une réponse aux besoins très multiples et contradictoires des individus,
mais ces efforts aboutissent paradoxalement à un déficit démocratique.
For the adepts of Montesquieu’s paradigm that judges should be ‘la bouche
de la loi, des êtres inanimés qui n’en peuvent modérer ni la force, ni la
rigeur’22 (or, as Lasser put it in relation to ‘all that contemporary American
judicial … debate’ which ‘also contains remarkably large doses of vehe-
mently anti-policy rhetoric, … this anti-policy stance often goes hand in hand
with an understanding of the judicial role which valorizes the passive, and
mechanical judicial application of legal norms’)23 judicial activism obviously
is a nightmare.
But times have changed. So has the prevailing view. Already Portalis – one
of the drafters of the French Civil Code of 1804 – acknowledged that legisla-
the judiciary pillar of the Dutch Council of State) it depends on the case whether an
active or a more ‘defensive’ approach is preferable (2008, p. 1091).
19 Roach (2007, pp. 73–5).
20 Roach (2007, p. 28).
21 Verougstraete (2008, pp. 221 and 222).
22 Montesquieu (1758).
23 Lasser (2007, p. 72). Strikingly, Lasser adds that ‘an interesting and unmis-
takable pattern emerges: every time – with only one minor exception – that the [US
Supreme] Court (or any of its members) used the term “policy” to describe how a
fellow judge or jurist justified his proposed interpretation, it did so to dismiss that argu-
ment. “Policy”-based interpretation … turns out to be inappropriate in the American
judicial context’ (p. 73 with examples on the subsequent pages).
tors cannot anticipate everything.24 He understood that something had to be

done in that legal vacuum:
Le législateur n’exerce moins une autorité qu’un sacerdoce. Il ne doit pas perdre de
vue que les lois sont faites pour les hommes, et non les hommes pour les lois;
qu’elles doivent être adaptées au caractère, aux habitudes, à la situation du peuple
pour lequel elles sont faites; qu’il faut être sobre de nouveautés en matière de légis-
lation, parce que s’il est possible, dans une institution nouvelle, de calculer les avan-
tages que la théorie nous offre, il n’est pas de connaître tous les inconvéniens que
la pratique seule peut découvrir. … qu’il serait absurde de se livrer à des idées
absolues de perfection, dans des choses qui ne sont susceptibles que d’une bonté
relative.25
For those who still believe that the law is always clear, a quotation from one
of the giants of the common law may serve as a wake-up call:
at the moment it is really rather hard to know exactly what the common law is in
some areas in the light of the Convention [on human rights].26
Someone has to adapt the law in specific cases and, in the absence of any
specific law or ‘precedent’,27 to cut the knot. That heavy task has been put on
the shoulders of judges and they are the best fit for that purpose, which is not
to say that they do not make mistakes (they do). Denying that view is not at
all innocent. It implies that the law is given for once and forever, unless the
legislator changes it; that those parts of the law which are black holes are
doomed to stay a lawless realm until the legislator takes action. Not overly
attractive, is it?
More importantly, many cases submitted to the courts are not black and
white, seen from a legal angle. Apart from the appreciation of the facts and the
evidence (which are unrelated to judicial activism), the arguments put forward
by the parties often are more or less in balance.28 The court ‘just’ has to decide
24 His famous ‘Discours préliminaire du projet de Code civil’, Locré (1827, pp.
251 ff.).
25 O.c. No. 5.
26 Rogers (2002, p. 62).
27 One should bear in mind that the doctrine of precedent is a peculiar phenom-
enon of the common law. Most (if not all) continental European courts are not bound
by precedent, although it will often be a source of inspiration. So are judgments of
superior courts; not because they are binding, but because a judgment that ignores them
runs a fair risk of being reversed on appeal.
28 Ronald Dworkin goes to considerable lengths to argue that there is only one
right answer, even in hard cases (1977, pp. 279 ff.). I tend to agree with him in a series
of cases (such as recoverability of economic loss and whether capital punishment is
cruel). In less extreme cases, I tend to challenge his view. The issue probably is of
which of the two is most persuasive. This holds particularly true for the great
many blanket norms, such as equity, good faith, reasonable(ness), contributory
negligence, victim,29 unreasonable delay,30 due process,31 actionable
nuisance32 and so on and so forth.33 Giving meaning to such norms may (will)
– in particular instances – come close to judicial activism, but it can hardly be
avoided.
Courts cannot help it that their duty is to interpret the law. Can they be
blamed if they decide that a defendant committed a tort in the grey zone, or if
they hold that equity requires deviation from stringent rules if the law provides
such an opportunity? I do not think so. In doing so, courts do not play the role
of an activist. That is not necessarily the case even if the consequences of their
judgments may contrast with the ‘will’ of the legislator, as the legislator could
not anticipate each and every set of circumstances. Judges cannot help it that
legislation does not provide clean-cut solutions for every single case. Nor can
they be blamed that the law does not (and to some extent cannot) keep pace
with the demands of society.34
If one is not prepared to accept that courts cannot escape from making
choices or that they have to decide, even if the law is unclear and/or precedents
are not available, no justice could be done in a great many cases. After all, in
this – rather unattractive – view, all lawmaking would be up to the legislator.
No solution would be available if legal provisions collide.
limited practical importance. Even if he were right, courts will not always ‘find’ the
right answer, as becomes manifest inter alia when they reverse earlier judgments
shortly after having delivered them. So I feel more comfortable with Hart’s criticism of
Dworkin’s theory (1994, pp. 272 ff.). Hart puts it as follows: a judge ‘must always have
some general reasons justifying his decision and he must act as a conscientious legis-
lator would by deciding according to his own beliefs and values. But if he satisfies
these conditions he is entitled to follow standards or reasons for decision which are not
dictated by the law and may differ from those followed by other judges faced with simi-
lar hard cases’ (at p. 273).
29 E.g. art. 41 ECHR.
30 Art. 6 para. 1 ECHR. The ECHR has developed a vast case law about this
topic.
31 See, inter alia, Harlan’s dissenting view in Poe v Ulman, 367 U.S. 497, 541–2
(1961).
32 See inter alia, McManus (2008, pp. 493 ff.).
33 This does not mean that courts should act as ‘êtres inanimés’ if the law does
not grant the power to harp on the equity tune. As Carbonnier (quoted by Lasser, o.c.
pp. 45–6) put it: ‘Because the judge is a man and not a syllogism machine: he judges
by his intuition and his sensitivity as much as he does by his knowledge of [legal] rules
and by his logic.’
34 See about this topic, from the angle of the development of tort law, Bell (2007,
pp. 19 ff.).
Are judges overstretching their powers if they rule, say, that Article 2
ECHR is more compelling than most other human rights?35 Or are they just
doing their job? Or should we say that all the above is ‘only’ a matter of inter-
pretation of the law? If so, where and how to draw the line between interpre-
tation and further development of the law?36
Another ‘difficulty’ is that society changes over time. So do views on
morals, justice, equity and the demands of society.37 More often than not,
legislators lag far behind all those developments.38 Is this to say that courts
should stick to old-fashioned interpretations or outdated laws?39 Is it their duty
to ignore the demands of society? To close their eyes for the evolution of
morals, as Aubert put it?40 Delicate questions that cannot be answered in black
35 See about this topic e.g. Cariolou (2008, pp. 259 ff.).
36 Kerr (2003) rightly observes, in this context, that reasonable people can
disagree on many legal questions.
37 In his speech for the Bar Association of India, Australia-India Council (New
Dehli, 6 January 1997), the Australian Justice Michael Kirby quotes the Indian Justice
J.S. Verma: ‘The judiciary will continue to respond to the changing needs of the times.
That is how activism has evolved’ (www.hcourt.gov.au/speeches/kirkbyj/kirkbyj_
indialt.htm). He adds that the Indian Supreme Court has a respected reputation for
creativity and ingenuity in the development and adaptation of the common law to the
enormous contemporary problems and opportunities of the country (he subsequently
mentions a series of cases). The Australian Justice Frank Kito (quoted by Justice Kirby)
adheres to a fundamentally different view. So does the present President of the US
Supreme Court (Justice Roberts), as follows from his confirmation hearing: judges ‘do
not have a commission to solve society’s problems, as they see them, but simply to
decide cases before them according to the rule of law’ (www.cfif.org/htdocs/legisla-
tive_issues/federal_issues/hot_issues_in_congress/supreme_-judiciary-questionnaire.
htm).
38 Soli Sorabjee (former Attorney-General of India) – quoted by Justice Kirkby,
o.c. – put it as follows: ‘indignant critics forget that it is the Executive’s failure to
perform its duty and the notorious tardiness of legislatures that impels judicial activism
and provides its motivation and legitimacy. When gross violations of human rights are
brought to its notice, the judiciary cannot procrastinate. It must respond.’ Justice Kirby
rightly points out that politicians tend to confine themselves to issues that have a ‘vote
in it’. In his view, judges may ‘feel willing’ to act if ‘the permanent values are clear and
the issue is relatively discrete and manageable’ in the face ‘of clearly established
needs’. See also Raes (1997, p. 165). Justice McHugh made the same point, but put it
slightly more nicely: ‘Modern legislators simply do not have the time to continually
monitor and amend legal rules … If judges were to become reluctant to adapt the law
to a changing society, public confidence in the rule of law would be seriously impaired
because large areas of law would be out of touch with the needs of society. If the law
did not remain the appropriate mechanism by which citizens regulate their affairs and
resolve their disputes, it would become largely irrelevant’, o.c.
39 The question is convincingly answered in the negative by – inter alia – Justice
David, o.c.
40 Jean-Luc Aubert, D.2001 Chron. 489 (2001).
and white terms.41 But even Sir Owen Dixen, often called Australia’s greatest
lawyer and a judge who believed in strict legalism, admits that judges ‘must
proceed, not from political or sociological propensities, but from deeper, more
ordered, more philosophical and perhaps more enduring conceptions of
justice’.42 Justice McHugh is right, I think, commenting that this
sounds nowadays43 like a voice from another world … my clear impression … is

that the majority of the common law judges today accept that social conditions can
generate changes in legal principles and rules and that the judicial method is not so
restrictive as Sir Owen’s analysis indicates.44
A similar point was made by Justice Cardozo. After having observed that the
law is influenced by logic and tradition, he states that ‘[t]he end which the law
serves will dominate them all. … not the origin but the goal is the main
thing.’45 The European Court on Human Rights put it as follows: law (the
convention) is a living instrument.46
41 This, I think, is also the answer to those (many) commentators who do not
cease to harp on the tune that the making of the law is the task of the elected legisla-
tor; see e.g. Roach (2007, p. 76). Apart from the fact that few elections are about core
issues, let alone legislation, the problem is that legislators, the world around, do not
take their job seriously when it comes to topics requiring a long-term view, such as
environmental degradation, over-exploitation of natural resources, climate change and
the eradication of poverty; see for a similar view Salzberger (2007, p. 223). In most
countries many other vital topics could easily be added to this list. It is equally very
much open to debate whether it is true that judges could not be controlled if they greatly
(and consistently) overstretch their powers. The mere fact that this is rarely done is
telling, isn’t it? Governments (politicians) are seemingly – all in all – happy that others
do what they do not dare but ought to do. In other words: I challenge the view (ventured
inter alia by Kerr, o.c.) that ‘the more the courts roam, the less the elected branches
retain’. Yet, the former Australian Chief Justice Gibbs (2004) is certainly right in
saying that, in single cases, it may be unclear whether or not the law has been
improved. Not surprisingly, however, there are rather famous learned lawyers who
strongly oppose any judicial activism; among them Campbell (2003, p. 307).
42 Quoted by Justice McHugh, o.c.
43 I.e. thirty years later.
44 Ibid; he elaborates on this point further down. The need for judicial lawmak-
ing. A similar point was made by Justice Gummow (also quoting Lord Radcliffe) in Wik
Peoples v Queensland (1996) 187 CLR 1 at 179 and Stone (1936, p. 20).
45 Cardozo (1921, pp. 66 and 102) (also quoted by Justice McHugh).
46 Settled case law; see inter alia Johnston and others v Ireland, Series A no. 112
pp 24–5, § 53 and E.B. v France, appl. no. 43546/02 § 46. In Demir and Bakayra v
Turkey (12 November 2008) the Court goes quite far, in that it holds that it has never
‘considered the provisions of the Convention as the sole framework of reference for
interpretation of the rights and freedoms enshrined therein … It has always referred to
the “living” nature of the Convention, which must be interpreted in the light of present-
It remains true, of course, that judges should be cautious to develop the law
by bold or creative interpretation and even more so by applying too easily
approximative or vague concepts such as equity, good faith and the like. All
the more so in specific fields, such as real property law, the law of succession,
inheritance, time limitation, parts of insurance law, and even more so some
parts of family law and, more generally, realms of the law where legal
certainty is of utmost importance. In other fields, such as major parts of
contract law, tort law and environmental law, they can afford to be less reluc-
tant, I think. This leaves untouched that courts and judges should arguably be
reluctant to play easily the card of too outspoken views on moral issues or the
absurdity of a specific outcome.47
One of the major concerns of the antagonists of judicial activism is
their fear of ‘political judgments’.48,49 True, judges are not a political
day conditions, and that is has taken account of evolving norms of national and inter-
national law’(para. 67/68). It recalls that it has used ‘intrinsically non-binding instru-
ments of the Council of Europe organs’ (para. 74), whereas it cannot disregard ‘rules
and principles that are accepted by the vast majority of States’ which ‘reflect a reality’
(para. 76). In searching for the common ground ‘it has never distinguished between
sources of law according to whether or not they have been signed or ratified by the
respondent State’ (para. 78).
47 Lanner quotes an advisory opinion of Advocate-General Charbonnier: ‘It
would be morally unacceptable that … Such a solution would be all the more shocking
in that … It would simply be scandalous that …’ (o.c. p. 253). Such a very outspoken
view arguably is slightly overdone.
48 This point is made by many outstanding lawyers. E.g. Jon Bruning [talking
about the US] stresses that people ‘would prefer to have policy decided by their elected
officials, not by appointed judges’: testimony before the Committee on the Judiciary
United States Senate, 3 March 2004, p. 24 (Mr Bruning is Attorney-General of
Nebraska). A similar view is ventilated by the US Court of Appeals Court Judge
Diarmuid F. O’Scannlain (2008). In the same session Senator Edward Kennedy
eloquently and convincingly argued that legislators often waste their time addressing
minor issues, instead of tackling matters that really count (he is fairly concrete on that
point): o.c. p. 41.
49 On the other hand, one should not be over-sensitive. In a speech given on how
a British Bill of Rights and Responsibilities fits into a long British tradition, the Lord
Chancellor Jack Straw complains about the ‘lamentation’ of the opposition against the
law. Repealing the Human Rights Act ‘would reduce the margin of apprecation that UK
courts enjoy. It would have the effect of restricting the flexibility and the application of
the balance within the UK courts’. He described the HRA as ‘a living development of
rights to assist our citizens’ – ‘a floor and not a ceiling’. Further on, he claims among
his party’s ‘proudest achievements’ equality and a right to administrative justice,
adding with obvious approval that ‘Judicial review has developed significantly in
recent years; and … really does help ensure that executive decisions are made with
proper regard for the rights of the individual’ (publication of the Ministry of Justice, 21
January 2008). Justice Kirby quotes a Lord Chancellor (Lord Mackay of Clashfern):
‘The extent to which that [i.e. development of the law by judges] is permissible … is
branch.50 Politics are, in principle, not their domain. However, Posner

rightly observed that judges who prefer a modest role still are politicians, but
timid ones.51 Or, as John Bell put it, ‘judges can decide not to deal with prob-
lems by change, but they have an impact by that refusal’.52
This is not to say that courts can (easily) ignore the law as it stands.53 They
must be cautious to break new ground. They should be very reluctant to hold
that laws have become obsolete. They should give serious attention to the
potential consequences of their innovations.54 The more uncertain those
consequences are, the more reluctant judges should be. They should realize
that, unlike most pieces of legislation, case law tends to have retroactive
effect,55 which may have draconian and unexpected consequences.
not easy to formulate. … I find it difficult to enunciate what the boundary is. …
Development of the law is part of the traditional role of the judges over the years under
our system. It has been a healthy and powerful influence of the law and on the devel-
opment of the law and the protection of our people in the various centuries when it has
been done, and continues with complete health and robustness at the present time.’
Justice David (Supreme Court of New South Wales) quotes the former Australian Chief
Justice Sir Anthony Mason: ‘[W]e must recognize that the courts are institutions which
belong to the people and that the judges exercise their powers for the people. The
requirement that judges respond to the needs of the individual members of society
contains within it the expectation that judges will intervene in order to achieve justice.’
Justice David (2004) adds that ‘judicial responsibility is the function of an institution
that serves the community’.
50 Roach (2007, p. 76).
51 O.c. p. 289.
52 O.c. p. 19.
53 If they do not, the ultimate solution is that the executive or political branch
might envisage appointing more and other judges, as President Franklin D. Roosevelt
pursued when the US Supreme Court had invalidated major parts of his New Deal in
the 1930s (O’Scannlain, o.c.). Subsequently, the Court gave in. See for an Indian exam-
ple Iyer (2007, pp. 130 and 133).
54 The consequences can be manifold and to the extent possible they should be
taken into account: e.g. coverage by insurance, insurability, opening the floodgates and
legal certainty. Justice Gibbs points to a judgment (Brodie v Singleton Shire Council,
(2001) 206 C.L.R. 512) where the law of maintenance was further developed. In his
view, it was by no means clear that the law was improved. After all, it might mean that
the Council spent ‘large sums in compliance with the decision [and] would be unable
to find the money to perform other essential functions’, Gibbs (2004).
55 This point is stressed by – inter alia – Harris (2007, p. 285) and Gibbs (2004);
he adds that courts should hesitate before venturing into fields which to the court are
unknown or at best imperfectly appreciated. O’Scannlain (2008) rightly observes that
predictability and uniformity are important. In his view, the essence of judicial activism
is that a judge fails to apply the law but sways according to his own sentiment. Yet, he
also mentions that it often is impossible to say with certainty in any given case whether
or not the judge’s sentiments will lead to a ‘bad’ decision.
5 A FEW EXAMPLES
A few examples may serve to illustrate the points made above.
5.1 Dutch Cases I
As a general rule, judgments that declare that laws have become obsolete and
have to be ignored are fraught with risk. But adhering to obsolete legislation
may have unacceptable effects. According to Dutch law (as it stood in those
days)56 an insured party was not entitled to receive compensation in excess of
the actual damage when an insured loss occurred. Despite this unambiguous
law, insurers provided coverage for losses caused by fire; they promised to pay
the amount agreed upon, even if the actual value of the insured premises was
less and/or the premises were not rebuilt. So the insured might gain from a fire.
It rather speaks for itself that the premium was based on the agreed coverage.
This was standard practice. Denying payment in accordance with the insur-
ance contract would favour the insurer and would mean that part of the
premium was paid for nothing. In this light, the Supreme Court held that the
relevant legal provisions had become obsolete and had to be ignored.57
Unacceptable judicial activism or realism? The latter view seems far more
attractive than the former, which would obviously have led to injustice (that is,
an unjust enrichment of the insurers).
Under Dutch law, liability for labour accidents is based on fault on the part
of the employer (Article 7:658 Civil Code). Over the years the Supreme Court
has developed its case law very much to the benefit of the injured employee,58
although the legal basis did not change in this respect.59 Since 199260 it has
provided an additional somewhat haphazard protection on the basis of (what
presently is) Article 7:611 Civil Code (the requirement of proper conduct on
the part of the employer; see below). True, the Court‘s case law is in a sense
courageous, but it remains within the scope of the law. In a sense it is legal
activism; at least insofar as the interpretation of the law has progressed over
time. But this does not mean – let alone necessarily – that its present case law
may be described as ‘activism’.61 It is equally possible that the old case law
56 The law was enacted in the early 19th century.

57 Hoge Raad 3 March 1972, Nederlandse Jurisprudentie 1972, 339; see for
more details and further development of this case law Asser et al. (1998, pp. 236 ff.).
58 Albeit that this case law arguably is not always fully consistent. See about this
case law the contribution of Faure and Hartlief (2008).
59 It did in other parts, but I leave those aside.
60 Hoge Raad 16 October 1992, Nederlandse Jurisprudentie 1993, 264.
61 See for a more general perspective Shapo (2003, pp. 132 ff.).
was (or had become) unduly mean to plaintiffs. Yet, it is suggested that it is
neither of the two. The development is, I think, broadly speaking, in line with
the changing concept of fairness and the changing demands of society, as
perceived by many.62 Is this to say that the development is wrong? Frankly, I
fail to see why, all the less so as the new case law remains within the scope of
the law entirely. This goes not only for the text of the law but also for the rather
ambiguous debate on the law when enacted in Parliament.
Moreover, the debates in Parliament do, in my humble view, not necessar-
ily provide much guidance; at least, one should be careful not to overestimate
the literal text. Apart from the fact that in the course of the debates most atten-
tion is often paid to minor details and/or that the argument goes in all direc-
tions, not seldom without a conclusive and clear outcome, they can easily be
misunderstood, as the following case may illustrate. The Dutch Supreme
Court had to decide a case about liability for allegedly improper supervision
of a small insurance company by an agency of the State. One of the questions
was whether or not the norm violated aimed to protect the victims (Article
6:163 Civil Code, the ‘relativity requirement’). The Court answered the ques-
tion in the affirmative.63 This finding was based on observations by the
Minister of Finance in Parliament that the supervisory legislation was (also) in
the interest of the public. But does this mean that the relativity requirement
was met? I am far from sure. First, the observations by the Minister (not a
lawyer) can easily be understood as a nice gesture without any further impli-
cation. Politicians often harp on tunes that sound good. More importantly, I do
not think that the Minister realized, let alone intended, that the supervisor
could be liable (in full, as there is no cap) in case of improper supervision. I
may be mistaken, but the very least to say is that one could argue both ways if
one is prepared to give this point more than cursory attention, which the Court,
with due respect, seemingly did not.64
This goes to the heart of the matter. As long as we do not know (let alone
with sufficient precision) what the legislator meant and the text of the law
leaves room for various interpretations, discussions about judicial activism
often are not very useful, or are even beside the point.
62 Over the last decade the social security system has eroded significantly. This
may have played a role.
63 Hoge Raad 13 October 2006, Jurisprudentie Aansprakelijkheid 2007, 2;
Nederlandse Jurisprudentie 2008, 527.
64 Needless to say, this point is ignored altogether in the discussion about the
Supreme Court’s judgment. I tend to believe that the Court did realize that its reading
(and reasoning) was far from compelling, but – as it turned out, rightly – assumed that
this would be overlooked as its argument is based on many – though in my submission
not conclusive – quotations.
I just mentioned the case law based on Article 7:611 Civil Code. It started
with a case about damage to an employee’s car, incurred in the course of his
work. The Supreme Court held that the employer had to bear the costs of
repair.65 The next case was about a car accident in the course of his work,
caused by negligence of the employee; the accident caused personal injury to
the employee. There was no way back: the Court understandably and unavoid-
ably held that the employer had to bear the loss.66 Since then, other cases have
been submitted to the Court.67 I will not go into detail as Dutch law is proba-
bly not your prime concern. It suffices to say that the Court faced (and still
faces, as more cases are pending) a delicate dilemma. Seen from the angle of
justice and – in a sense68 – consistency, injustice would be done in denying the
new claims. For the same reason, there are no solid arguments to dismiss
claims in related cases. Yet, this is a slippery slope, as it will ultimately blow
up the system, as it would introduce a strict liability which would certainly not
be in line with the intention of the legislator, nor with the text of the law,
which, in this respect, is unambiguous.
5.2 A Slippery Slope
The gist of my argument is that developing the law in specific cases can lead
courts into a legal quagmire. At a certain point in the development of case law,
difficulties arise when new cases, aimed at further developing the law on the
basis of the existing precedents, are submitted to the court, and it comes to
realize that – with the benefit of hindsight – something may have gone ‘wrong’
in the past. ‘Wrong’ to the extent that the outcome of earlier cases was (often)
undisputedly reasonable and equitable, but it was never anticipated that plain-
tiffs would submit ever more related cases and whilst there are no convincing
arguments for not applying the same ‘rules’ to the new cases which come very
close69 to those decided earlier. In each single new case, there are no (longer)
persuasive arguments for not applying the new rule.
Is this to say that judges should resist the temptation to do justice in specific
cases? Definitely not. But they should try hard – harder than they sometimes
do – to avoid difficulties as just mentioned. Yet, they will fail from time to
65 Hoge Raad 16 October 1992, Nederlandse Jurisprudentie 1993, 264.

66 Hoge Raad 12 January 2001, Nederlandse Jurisprudentie 2001, 253 and 9
August 2002, Nederlandse Jurisprudentie 2004, 235.
67 Hoge Raad 1 February 2008, Nederlandse Jurisprudentie 2009, 330 and 331,
and Hoge Raad 12 December 2008, Nederlandse Jurisprudentie 2009, 332.
68 I mean: in relation to the cases decided earlier on the basis of art. 7:611 CC.
69 That is to say: there is a marginal difference. But when more and more cases
are submitted, all those marginal differences together amount to a completely different
type of case and would create a new ‘rule’.
time. In those instances it is open to debate whether the developments in case

law truly are a matter of ‘activism’. The first case (damage to the car,
discussed above) arguably was. But the subsequent cases probably are no
more than a ‘logical’ and in a sense inevitable follow-up of the first. It is
suggested that they are ‘only’ the inevitable consequences of earlier decisions,
which may have been insufficiently considered, but were certainly appealing
on the facts or their own merits.
5.3 Dutch Cases II
Article 21 Interimwet bodemsanering provided a legal basis for recourse

actions by the State against the polluter for costs incurred by the State for
cleaning polluted premises of third parties. Those claims foundered on the
relativity requirement,70 although it was crystal clear that the legislator had
tried (admittedly, seen from a very strict legal point of view, in a clumsy way)
to create a legal basis for the recourse. The legislator subsequently tried to
repair the damage by enacting new legislation to remove this requirement.
That attempt failed too.71
How to interpret this case law? Is it a matter of activism? Was the Court’s
obvious unwillingness to apply the legislation influenced by the – in a sense72
– retroactive effect of the legislation?73 If so, is that conservative or progres-
sive activism? There are arguments for both views. Conservative, in that the
court accepted a very literal and obviously unintended reading. Departing
from the latter view: has this anything to do with activism? Is it just interpre-
tation of the law? Or is this an example of progressive activism, in that ‘higher
values’ (probably the impulse to restrict retro-activity)74 played a predominant
role? I do not want to pursue this Dutch topic any further. The reason for
mentioning this case is that it highlights how difficult it is to put a specific case
in a pigeon-hole.
70 Hoge Raad 9 February 1990, Nederlandse Jurisprudentie 1991, 462.

71 Hoge Raad 30 September 1994, Nederlandse Jurisprudentie 1996, 196.
72 The easy way out would have been transfer of the claim of the owner of the
polluted premises to the State. But for reasons that will probably always remain
shrouded in mystery (more likely than not stupidity or wooden-headedness), neither the
State nor its attorney opted for this easy solution.
73 See inter alia Harris (2007, p. 285).
74 Hoge Raad 9 February 1990, Nederlandse Jurisprudentie 1991, 462, could be
interpreted in this way.
5.4 The Human Rights Perspective
The UN Committee against Torture held that a contracting State can be (and
in the case at hand was) obliged to submit a case concerning a leading politi-
cian to the competent authorities for the purpose of prosecution.75 Besides,
marginal punishment can (also) violate Article 2 ECHR.76 Seen from this
angle, it is all the more striking that the Dutch Supreme Court holds that Dutch
legislation, which requires that decisions concerning prosecution of Ministers
are entirely in the hands of the Lower Chamber of Parliament or the govern-
ment, does not violate international conventions (including the ECHR).77 The
first two judgments are bold. Are they examples of ‘judicial activism’?
Perhaps. But, though courageous, they do not invalidate any legal provision,
nor are they in any sense contrary to any provision of the European
Convention. The third decision is more surprising. It seems a deed of – to put
it nicely – ‘conservative activism’.
5.5 Compelling Requirements of Equity
Some diseases, such as mesothelioma, have a very long incubation period. If

the applicable legal provisions were applied strictly, most claims against those
who negligently caused the disease would often be time-barred. This would
obviously be very unfair. Courts in various countries have found ways to avoid
this appalling result.78 The Dutch Supreme Court in this respect applied a legal
provision reading that a rule binding by virtue of law does not apply to the
extent that, in the given circumstances, this would be unacceptable according
to the criteria of reasonableness and equity.79 Judicial activism? Yes and no.
Yes, insofar as the rules on prescription were denied application. But the court
could rely on a legal basis.80 It is obvious that it did so because (a) the legis-
lator had not anticipated this kind of problem and (b) strict application of the
law would not be in line with the demands of a decent society at the time the
75 17 May 2006, comm. no. 118/2001 Suleymane Guengueng et al. v Senegal;

see for more details NJCM bulletin 2007 (2) pp. 199 ff. See for a similar judgment
(albeit not about torture) of the ECHR 30 November 2004 (Öneryildiz v Turkey).
76 ECHR 30 November 2004 (Öneryildiz v Turkey).
77 Hoge Raad 19 October 2007, Rechtspraak van de Week 2007, 878.
78 See for more details Hondius (1995) particularly his general report pp. 11 ff.
and the various national reports.
79 Hoge Raad 28 April 2000, Nederlandse Jurisprudentie 2000, 430, and 20
October 2000, Nederlandse Jurisprudentie 2001, 268.
80 Article 6:2 para. 2 Civil Code.
judgment was rendered.81 So, it is far from obvious that the court can be
‘accused’ of any real activism.
5.6 French, Belgian and Italian Cases
As early as 1897 the French Supreme Court interpreted Article 1384 para. 1
Civil Code82 in a very extensive way.83 Up to today, this remains a landmark
decision. Probably indeed an act of judicial activism, with the apparent aim to
protect victims, despite the fact that the Court’s interpretation does not go
against the text and despite the fact that the legislator did not envisage or
intend such a wide interpretation, whereas earlier decisions had derived a
much narrower meaning from the same paragraph.84
In the Anca judgment85 the Belgian Supreme Court dealt with the question of
whether the State could be held liable for damage caused by incorrect judg-
ments. The Court answered the question in the affirmative ‘in view of the
present state of the legislation’ (gezien de huidige stand van de wetgeving). Yet,
liability is restricted to cases which are reversed on appeal because the lower
court had violated ‘an established rule of law’ (een gevestigde rechtsnorm).
According to the Court, its judgment did not disrespect the trias politica, the
Constitution, or the independence of magistrates who are not liable in person.
No doubt a courageous and potentially far-reaching judgment. Despite the many
words used, the Court barely gives insight into its grounds. I tend to think that
this judgment falls under the umbrella of judicial activism. The Court may have
taken the view that liability matches the demands of a modern society.
The same holds true for the fascinating Italian case law about danno
biologico or danno alle salute, a species of damages in case of personal injury
available besides compensation for actual loss of income and for pain and
suffering.86 This, finally, is an entirely new, bold concept next to well-
established, internationally recognized concepts of damages.87
81 This is not to say that the judgment was universally applauded. Victims took
the view that the Court did not go far enough in that it did not hold that time limitation
had to be set aside in all cases. Insurers sounded the alarm, which turned out not to be
a brilliant move. Since, the legislator has taken action for future cases; as a conse-
quence defendants and insurers will be worse off, compared with the cautious and
balanced approach of the Supreme Court.
82 ‘On est responsable non seulement du dommage que l’on cause par son propre
fait, mais encore de celui qui est causé par le fait des personnes dont on doit répondre,
ou des choses que l’on a sous sa garde.’
83 Civ. 16 June 1896 (Teffaine), DP 1897, I. 433.
84 See for more details Viney and Jourdain (1998) par. 628.
85 19 December 1991, TBBR 1992, pp. 60 ff.
86 See for more details Busnelli and Comandé (2003, pp. 180 ff.).
87 See Koch and Koziol (2003, p. 424) and Rogers (2001, p. 246).
5.7 Hard Cases on the Edge of Moral
More delicate (for both moral and substantive reasons) are cases about wrong-
ful birth and wrongful life.88 Courts in several countries have rendered judg-
ments favourable for the plaintiffs.89 In a sense, they are examples of judicial
activism par excellence, as they extend the concepts of liability and damages.90
Yet, it is open to debate whether this prima facie view is entirely justified. First:
the courts could not escape from deciding these cases, whereas one can hardly
dispute that a (considerable) loss is suffered. Solid arguments (in international
doctrine and case law) can be found for decisions either way. Under these
circumstances, it is not easy to explain why only a judgment favourable for the
plaintiff would qualify as judicial activism. Or would a judgment for the defen-
dant also be judicial activism? That would be an odd result, I think.
5.8 Non-European Cases
The New Zealand Court of Appeal accepted that damages could be awarded
against the Crown as a remedy for a breach of the Bill of Rights, a judgment
called ‘creative’.91 And the South African Constitutional Court dealt with a
case of rape by policemen. This obviously did not belong to their duties.
Nevertheless, the Court held that the employer was vicariously liable. This
judgment, too, is labelled ‘most far-reaching ‘ and ‘activist’.92 This label
may93 be justified, seen from a local angle. Seen from a comparative angle, it
hardly is. As to the latter: opinions are divided in Europe, but liability is well
in line with case law in Belgium, France, Greece, Italy (perhaps), the
Netherlands, Poland, Portugal (perhaps), and also in Israel.94
88 The issue was heavily debated in the European Group on Tort Law. Opinions
greatly diverged; many members preferred a cautious approach (i.e. no compensation),
particularly on moral grounds. See for more details, also about recent case law in vari-
ous countries: Koziol and Steininger (2008, pp. 138 ff.).
89 See for more details Koziol and Steininger, Tort and Insurance Law
Yearbooks, European Tort Law 2003, 2004, 2005 and 2006..
90 See inter alia Radé and Bloch (pp. 117–18); and the various contributions in
Koziol and Steininger, Tort and Insurance Law Yearbooks, European Tort Law 2003,
2004, 2005 and 2006 and Kortmann and Hamel (2004) (with several contributions in
English).
91 Harris (2007, p. 304).
92 Corder (2007, p. 357).
93 See the next footnote.
94 See for more details: Spier and Haazen (2003, pp. 318 ff.). If the South
African report by South Africa’s leading tort law expert Neethling is correct (2003, p.
228), the Court’s judgment was far from ‘activist’ or far-reaching but in line with the
prevailing view in South Africa.
One of the best-known landmark decisions was Brown v Board of

Education95 holding that the segregation of white and ‘Negro’ children denies
equal protection. In M.C. Mehta v State of Tamil Nadu96 the Indian Supreme
Court ruled out the employment of children in match factories as it is
hazardous. In other cases it accepted various measures aiming at child
welfare.97 No doubt, those judgments will have shocked many. They have
changed the law and the country. But I dare to challenge the view that those
courageous judges are zealous activists. They are not, I think. The activists
were all those who upheld an unsustainable system, which, in view of the
accepted social and moral standards of (at least) our time, was obviously in
gross violation of all kinds of human rights and fundamental principles of law.
But I realize that this view is far from universally accepted and will be decried
by many as the acme of activism.
5.9 The Struggle between Judiciary and Legislator
Case law sometimes paints a fascinating picture of the struggle between the
legislator/executive and the judiciary.98 The Indian Supreme Court ruled that
where judicial redress is sought for legal injury to a person, or a determinate
class of persons who, by reason of poverty, helplessness, socially or econom-
ically disadvantaged position or disability, are unable to approach the court for
relief, any member of the public, acting bona fide and not for oblique consid-
erations, may maintain an action on their behalf.99
More generally the Supreme Court has been innovative in the interpretation
of the right to life, which, in its view, encompasses a right to food, clothing, a
livelihood, health, development, education, protection against environmental
degradation, and even a right to roads in hilly regions.100 The Court also
explains why it went so far:
95 347 U.S. 483 (1954).

96 AIR 1991 SC 417.
97 E.g. Lakshami Kant Pandey v Union of India (1987) 1 SCC 667. Noticeable
is, in particular, Kesavananda Bharati v State of Kerala about the sovereign power of
Parliament. Mr Sorabjee called this decision Palkhivala’s ‘greatest contribution to our
constitutional jurisprudence. The judgement has been a salutary check on Parliament’s
tendency to ride roughshod over fundamental rights and its insatiable appetite to
encroach upon fundamental rights’ (first Palkhivala lecture, February 2003).
98 See for a spectacular example Iyer (2007, pp. 126 ff.).
99 1981 (Supp) SCC 87 (SGuptaUnion of India). See for many other examples
Arora (2001). See further Vandenhole (2008, pp. 559 ff.).
100 Iyer (2007, pp. 145–6).
The concern shown [by the law] to the poor and the disadvantaged [should be]
much greater than that shown to the rich and well-to-do because the latter can, on
account of their dominant social and economic position and large material
resources, resist aggression on their own rights where the poor and the deprived just
do not have the capacity or the will to resist and fight.101
These examples show that the Indian Supreme Court goes quite far and
does not shy away from judicial activism. It is, of course, a matter of appreci-
ation whether one likes this stance. The very least to say, is, in my submission,
that its approach, bold and courageous as it is, is far more attractive than a
more reluctant one in which judges close their eyes to large-scale misery and
injustice (in the proper sense of the word; not in the doctrinal one).
According to Brice Harris the question is whether ‘informed people think,
given a realistic appreciation of the demands of society for governance and the
system of government that exists, that any creative action taken by the court is
the best way the country’s governance structure could have reached to a situ-
ation that required a rule making or rule-application initiative’.102 In this
sense, which I whole-heartedly endorse, the Indian Supreme Court’s courage
can only be applauded.
There is a lot more, such as cases about appalling working conditions,
about the right to basic needs and all aspects of equality (gender, race and
otherwise). It goes far beyond the scope of this chapter to tackle them. Some
probably are examples of judicial activism, others are hardly more than admit-
ting the only acceptable outcome and by the same token, in my submission, no
deeds of activism at all.
5.10 Historical Wrongs
Fascinating also are cases about historical wrongs. Colonization brought much
evil to many countries.103 The people who lived in a country (often in peace)
were killed, or at least lost their land. In the last 15 years or so, they have tried
to ‘rewrite’ history with some noticeable successes. Several courts were not
indifferent to the appeal that – as Justice McHugh put it – ‘they must repudiate
rules developed in earlier times when those rules have become out of touch with
contemporary notions of value.’104 Apparently following this reasoning, victory
was on the side of the ‘oppressed’ in cases about the title to (their) land.105 The
101 Quoted by Iyer (2007, p. 146).

102 In Dickson (2007, p. 273).
103 See inter alia Mike Davis’s impressive Late Victorian Holocausts (London:
Verso, 2001).
104 O.c.
105 Mabo (2), (1992) 175 CLR 1; Wik Peoples v Queensland, (1996) 141 ALR
same holds true for various kinds of Holocaust claims, claims concerning slav-
ery and claims about forced labour during the Second World War. Legislators
in various countries understood the changing tide and acted accordingly.106
5.11 Climate Change Litigation
Last but not least, one of the many cases on the battleground of climate
change: Massachusetts et al v EPA.107 The US Supreme Court held, inter alia,
that EPA’s refusal to regulate presents an actual and imminent risk of harm and
that the refusal to regulate at a minimum contributes to injury. The Court
rejects the ‘after you argument’ (reduction in the US is of no avail as long as
other countries (developing countries included) do not do the same). These
two findings probably are the most important and most spectacular. But I do
not think they have anything to do with judicial activism, as they are based on
solid grounds and do not violate any existing law.108
6 LEGISLATOR AND JUDICIARY

It follows from the above that there is no clear and obvious line between (the
powers of) the legislator and the judiciary. In the political system of most
countries the legislator has the final word in most cases. That means that he
has the power to ‘overrule’ judgments he dislikes. As a matter of fact, he rarely
seems to use this power.
Yet, this ‘primate’ is not universal. National law may be in conflict with
international rules, human rights or ius cogens. Even if the (national) legisla-
tor takes the view that his national law supersedes international law in the
sense just described, it is far from obvious that the courts have to follow this
isolationistic view.109 However, this a huge topic.
For the purpose of this chapter I confine myself to an interesting proposal
put forward by Anant and Singh.110 They distinguish three forms of judicial
activism: interpretational, legislative and executive. As to the latter two, they
point that the social costs may greatly exceed any social benefits. A risk apt to
129 and for more details Richard Ogden, [1998] Victoria University of Wellington Law
Review 16; Canadian Pacific Ltd. v Matsqui Indian Band, [1995] 1 S.C.R. 3;
Delgammuukw v British Columbia [1997] 3 S.C.R. 1010 and Ronen (2008, pp. 521 ff.).
106 See for more details Spier (2007, pp. 16–17).
107 549 US 2007.
108 Although that view is fiercely challenged by the Court’s minority.
109 See also Harris (2007, p. 277).
110 Anant and Singh (2002, pp. 4433 ff.).
materialize as courts are not equipped to make technical choices or sample the
distribution of preferences in a society.111 They conclude as follows:
The persistent justification of the courts in all cases of either executive or legisla-
tive judicial activism has been that the courts have been forced to take an activist
stance precisely because of the executive or legislative failures. However, this
activism cannot substitute for the failed institutions, any more than, allegorically
speaking, equating marginal costs to marginal benefits in all markets in response to
the prevalence of inoptimal conditions in one market can insure a global optimum.
Judicial activism … acts to breach separation of powers, which in turn upsets
transnational efficiency and raises social costs. Indeed if the executive or the legis-
lature has become dysfunctional – rotten boroughs of obsolete executives and
unrepresentative legislatures – the solution is not in expanding the judicial enter-
prise, but in restructuring the dysfunctional institutions.112
A major objection to this view is that it seems to overlook the moral angle.
Apart therefrom, it may fairly be assumed that the learned authors seriously
mean that their advocated solution could bring solace. That view, however, is
fundamentally unrealistic and by the same token irrelevant. Anant and Singh
do not show or even point to how dysfunctional institutions could be restruc-
tured, let alone who could achieve that goal. Executives, business people and
politicians, more often than not, have, at best, a short-term view. They are
systematically indifferent to everything that goes beyond the sway of the day.
And, quite frankly, politicians can often hardly be blamed for it, as – with ever
fewer exceptions – only those issues are addressed by the media. Yet, if
nobody else cares for doing inevitable justice, courts cannot look backwards.
That particularly goes for topics which are of utmost importance for
humankind or significant groups.
7 INTERIM CONCLUSION
Judicial activism is a very controversial topic. It follows from the above that
the discussion often paints caricatures of the judiciary and its judgments.
Things tend to be seen in black and white.
In the vast majority of cases judges just apply the law as it stands, without
any fiddling with the foundations of the law as enshrined in acts or precedents.
Yet, judges in many countries are after an equitable result in the case at point.
In most cases this can easily be reached within the framework of the law as it
stands, whether or not by applying concepts of equity, good faith, boni mores,
111 O.c. p. 4438.

112 Ibid. pp. 4438–9.
negligence and so many more open norms: concepts which, quite often, are
part of the law (case law and/or acts, conventions, treaties).
In a minority of cases – that is, those which are discussed at length in
doctrine and at conferences – the law, in the sense of a clear-cut precedent or
act, is insufficiently clear or even not available. In those cases judges have to
make a choice. In my submission this has little, if anything, to do with judicial
activism.
In a very few cases – no doubt the most spectacular – courts break truly
new ground. In that respect some judges are more courageous than others.
Some go quite far to ‘develop’ the law in order to cope with – in their view –
unacceptable situations. The Indian Supreme Court may serve as an – in my
view shining – example. Others seem to adhere to the view that it is not their
task to keep pace with the changing demands of society.
Some judgments undoubtedly are acts of judicial activism. Criticizing the
phenomenon, more often than not, is a rather concealed way to criticize the
outcome, more than the process. Interestingly, it seems though extremely
conservative judgments/judges are rarely accused of activism.
Having said that, I have to admit that truly activist judgments are, of course,
not entirely unproblematic seen from a ‘democratic angle’ or, which largely
amounts to the same, the perspective of legitimation. It may fairly be assumed
that (most) courts will take criticism seriously; at least they should. It is
certainly not beyond imagination that they will change course, particularly if
the judges are persuaded by the criticism. Besides, in most cases (not – neces-
sarily – always, as briefly illustrated in Section 6 above) the legislator can
‘overrule’ case law he does not like. If he fails to do so, courts may well inter-
pret the legislator’s silence as a ‘silent consent’.
Be it as it may, I tend to challenge the view that each and every judgment
that keeps pace with the demands of society can be labelled as a deed of ‘judi-
cial activism’. Personally I would prefer to use that term only for those cases
where courts develop fundamentally new concepts which were not yet ‘in the
air’ or go downright against clear and unambiguous acts. It is a matter of taste
(and largely depends on the outcome of every single case) whether or not one
likes those judgments. Admittedly, courts should be reluctant in this respect.
But they should not be cowardly. In some cases they must show courage.
Climate change is such a topic. But it is by no means the only one.
8 BACK TO CLIMATE CHANGE AND OTHER TOPICS

OF TRULY SIGNIFICANT IMPORTANCE
Occasionally cases are about truly vital issues, that is, topics that stir major
parts of society or even a significant part of humankind in general, such as
climate change.113,114 If the law is clear and obvious, it should be applied, at

least as a general rule. More often than not in those instances, the law is pretty
unclear, because the issue is either ignored altogether by politicians115 or –
worse – governed by ill-conceived, badly considered international compro-
mises based on the short-term interests (more often than not only) of a few
powerful states.116 Those pieces of (international) legislation tend to disregard
the interests of major parts of society and/or of many not so powerful, often
poor countries. They are fundamentally indifferent to future generations, to
developing countries and emerging economies, which often suffer most from
a series of humanly made catastrophes.
Even in those cases, courts cannot manoeuvre merely on the basis of
personal views or their assessment of fairness, nor on merely personal ‘ideol-
ogy’.117 Yet, it seems entirely justified – if not necessary – that courts do not
confine themselves to the easiest available sources. Judges must also address
the question whether or not the international compromises comply with other
pieces of national and international law and with human rights.118
True, this is a thorny path. But I do not think it is fair to say that those consci-
entious judges who follow this path belong to the class of ‘soigné, fastidious,
civilized, cultured and cultivated patricians of the progressive judiciary – our
new philosopher-kings and enlighted despots’.119 Nor would I dare suggest that
politicians who have created the mess are (necessarily) uncivilized despots.
They may have done the best they could in the given circumstances. They
113 There is a huge body of doctrine about this topic. See inter alia: Verheyen
(2005); Smith and Shearman (2006); Faure and Nollkaemper (2007, pp. 123 ff.) and
Spier (2006, p. 346).
114 This is certainly not the only topic of utmost importance. The same goes for
environmental degradation, over-exploitation of natural resources, destroying the
oceans and the eradication of poverty.
115 Dietrich v the Queen (1992) 177 C.L.R. 292, 329.
116 Lord Irvine has fiercely criticized this kind of extra-judicial statement (quoted
by Kirkby). No doubt Lord Irvine has a point. On the other hand, openness in this field
might have a preventive effect in that courts do not come into play any more, which
would be beneficial to everybody, would it not?
117 Harris (2007, p. 288) and Iyer (2007, p. 166).
118 That is, I think, Hans Corell’s (2008) point stressing that any agreements
entered into must be effectively implemented (Corell has been UN Legal Counsel).
Justice Gibbs quotes Lord Reid: the court can extend the law ‘by the development and
application of fundamental principles’. He adds that it may also find a new principle
(o.c.). Many have pointed to the increasing importance of those realms of the law; see
inter alia Lord Bingham, o.c., noting that the rule of law surely requires legal protec-
tion of fundamental human rights. Raes (1997, p. 166) also points to general principles
of law. See also Clapham (2006, pp. 87 ff.).
119 Heydon (2003).
cannot help it that a long-term view and consideration for those whose future
is frittered away does not appeal to the people who have to elect them.
Yet, I would expect that courts, around the globe, will be courageous enough
to find ways to avoid the extremely significant evil that is going to materialize
if we stick to business as usual by emitting huge amounts of CO2 or if we leave
it to politicians and CEOs of enterprises to change course.20 Even if that would
require bold judicial activism (to an unheard-of extent), they will, in my
submission, be the only responsible people and they will be remembered in
history. The latter may also go for the others, in that they will be held in scorn.
After the defeat of Napoleon, a congress was convened in Vienna. A huge
series of topics, all about the future of Europe, were discussed. Among them
was the abolition of the slave trade, strongly advocated by the English dele-
gation. The proposal met fierce criticism from the Spanish and Portuguese
delegates. Palmella, the Portuguese representative, bluntly observed that this
was not a topic covered by international law. Some progress was made a few
days later. A declaration was adopted which called this trade immoral and
abhorrent.121
Those who object to judicial activism would probably support Palmella’s
view that judges are doomed to abstination in the absence of clear and author-
itative legal support for any ‘action’. Seen from a purely academic angle, this
may be an interesting view. The consequences obviously are unacceptable.
That holds true for any topic that affects fundamental human rights and more
generally vital interests of society or future generations or significant parts
thereof. Denying the latter view amounts to a lawless world, where only short-
term interests, power play or ignorance triumph.
If nobody else feels responsible, lawyers must stem the tide. And, whether
one likes it or not, there are and will always be courageous courts that take the
lead and are indifferent to pleas of academics whose only focus is legal theory.
Besides, I would suggest that legal theory (this chapter included) will barely
have any impact on judges (be they progressive, conservative or just capable
craftsmen). Or, as Lord Justice Alan Moses put it in a lecture at Trinity
120 Surprisingly, even banks, pension funds and supervisory institutions do not
seem to care. To the best of my knowledge, (re-)insurers still provide coverage, at least
in the realm of liability. The latter is all the more surprising as they (understandably)
exclude coverage for economic loss caused by genetically modified organisms, inter
alia because of incalculability (Ebert and Lahnstein 2008, pp. 577–8). Yet, some
awareness seemingly has arisen. AIDA and the Geneva Association are in the process
of some fact finding, although it is difficult to understand why they think that the facts
are (still) insufficiently alarming.
121 Adam Zamoyski, Rites of Peace: The Fall of Napoleon and The Congress of
Vienna, HarperCollins, 2007, ch. 25.
College, Oxford, quoting a professor of Moral Philosophy who allegedly

started his course saying:
But I remind you of one important point. Some of you, when you go down from the
University … A few – I hope a very few – will become teachers and Dons. Let me
make this clear to you. Except for those in the last category, nothing that you will
learn in the course of your studies will be of the slightest possible use to you in
afterlife.122
It follows that those who contribute to a decent development of the law, and
by the same token to a better world, do not have to fear. True, they will be
despised by (often very bright, though narrow-minded) academics and conser-
vative members of the judiciary for their judicial activism. Bold and coura-
geous judges will readily accept this fate. For sure, the criticism is not going
to have any impact on the development of the law. It never has.
At her farewell speech the Canadian Supreme Court Justice Claire
L’Heureux-Dubé cited Camus: ‘La justice n’est pas seulement une idée, c’est
une chaleur d’âme.’123 All we have to do is materialize ‘justice’. The highly
academic issue of judicial activism can be left to the citizens of ivory towers.
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PART VII
Comparative conclusions
14. Comparative and concluding remarks
1 LAWMAKING BEYOND THE NATION STATE

Nancy Fraser has noted that the effects of globalization in the post-Cold War
era, including ‘the growing salience of supranational and international organi-
zations, both governmental and nongovernmental, and of transnational public
opinion’, are making it increasingly difficult to assume that ‘the modern terri-
torial state is the appropriate unit for thinking about issues of justice, and that
the citizens of such states are the pertinent subjects of reference’.1
Similarly, Hans Lindahl has argued that the increasing political power of
multinational corporations challenges ‘legal liberalism’s assumption that law
is coterminous with state law’, forcing us to recognize that ‘even constitutional
law can be generated outside the state’.2
Amongst other things, globalization involves the growth of an international
or supranational normative value system that directly and indirectly affects
lawmaking in national states. This undermines traditional assumptions about
lawmaking in that it establishes new, transnational and transcultural norms and
standards that increasingly dominate regional and national discourses about
constitutionalism and human rights. Through the pressure exerted by a combi-
nation of international, regional and other transnational bodies, powerful
states, neighbours and trading partners, nongovernmental interest groups and
international or transnational corporations, municipal constitution- and
lawmaking bodies are obliged to ensure (or simply find) that their own law
conforms to the international value system. The most visible effect is the inclu-
sion of certain human rights norms and standards in bills of rights and in
normal domestic legislation so as to bring about the desired institutional
arrangements (the establishment of constitutional watchdog bodies; indepen-
dence of the courts) and to entrench recognition and protection of core human
rights (equality, protection of democratic participation, press freedom, security
of the person, social security). This process is most visible in young and
1 Fraser and Bourdieu (2007, pp. 17–35).

2 Lindahl (2007, pp. 149–52).
457
emerging democracies, but it also happens in established democracies, as

appears from the promulgation of the Human Rights Act 1998 in the UK.
A second process of international and supranational influence functions via
the bargaining power of international corporations to persuade national legis-
latures and governments, especially in younger and poorer democracies that
are anxious to attract foreign investment, to adopt legislation and procedures
that favour international trade. This is evident from the incorporation of trade-
friendly standards and procedures in areas such as labour law, tax law, state
regulation of business and property interests and (national and international)
trade law. In richer and established democracies a similar process might
assume the form of regional agreements that promote unification or integra-
tion of law, at least in certain areas, so as to promote cooperation, free move-
ment of persons and goods, and trade. The unification of private law in the
European Union through the development and adoption of alternative regimes,
such as the ‘opt-in’ system described by Jan Smits, is an example of how
lawmaking is influenced by globalization in this sense.3
A third aspect involves the indirect influence of globalization on normal
lawmaking processes, particularly in private law, through what has been
described (in a different context) as the ‘seepage’ of higher-level norms and
values. In general the first process described above will have most effect on
lawmaking in the sphere of public law, in the sense that it will influence the
making of constitutional and regulatory law, whereas the second process will
have most effect in commercial law. Apart from and in addition to these
processes, globalization can influence the seemingly constitution- and trade-
neutral areas of private law indirectly. As a general rule, adoption of interna-
tional norms and standards will introduce or strengthen constitutional
supremacy, independence of the judiciary and judicial review, which will in
turn affect both the style of adjudication (directly) and the substance of private
law (indirectly). When international norms and standards are adopted as part
of municipal law the ‘normal’ development of private law doctrine must
inevitably be complemented by reforms and developments driven by extrane-
ous norms and standards (for example, contract law must adapt to equality and
non-discrimination standards), which could raise problems for ‘normal’
lawmaking if the courts are uncertain about their new roles or hesitant to move
away from their traditional roles. This process of indirect influence could
create problems if courts or lawyers resist external pressure on the develop-
ment of private law doctrine; in the area of eviction the adoption of interna-
tional housing standards has caused problems in jurisdictions as divergent as
South Africa and England.
3 Smits (2007, pp. 1181–1203).

Comparative and concluding remarks 459
As was mentioned in the introduction, many chapters in this volume point

to the fact that an obvious (institutional) effect of globalization appears from
the tendency to shift lawmaking powers away from the nation state, where
decision-making power was traditionally vested. Some chapters merely iden-
tify aspects of this process of ‘lawmaking beyond the nation state’, while
others address some of the consequences and questions it raises.
The contributors identified, among others, the following elements inherent
in lawmaking beyond the nation state:
1. An obvious shift of decision making to a higher level of institutions,

sometimes referred to as multi-level governance (see for example Chapter
2 by Curtin). This shift to higher level institutions was particularly identi-
fied with respect to problems that also cross national borders, such as
environmental pollution (Michael Faure in Chapter 12) and climate
change (Jaap Spier in Chapter 13).
2. At the same time, contributors also pointed out that the shift to a higher
level of decision making does not always imply a shift to formal institu-
tions (for example, leading to formal treaties being concluded). In some
cases, decision-making power shifted to international organizations such
as UNCITRAL, leading to the creation of soft law instruments, for exam-
ple in the area of international trade law (Sieg Eiselen in Chapter 4). In
some cases, power even shifted to non-state actors, such as corporate
actors and organizations. Many contributors stressed the increasing
importance, as far as norm generation is concerned, of multinational
corporations, a shift that is to an important extent also driven by financial
globalization (see especially Bas Steins Bisschop in Chapter 8 and Philip
Sutherland in Chapter 9). These findings led some contributors to ques-
tion whether one needs the state to have law. C.H. van Rhee points out
how historical examples show that there has been ‘law without a state’ in
the past and Sieg Eiselen points to the lex mercatoria as an important
source of law not necessarily originating from a state.
In discussing the consequences of globalization particularly for private law,

many of the contributors distinguish between positive and normative issues.
On the positive side, some mention that lawmaking beyond the nation state
inevitably leads to a centralization of powers and a convergence of legal norms
via harmonization. More attention is given to that point below in Section 5.
On the normative side, contributors especially ask questions concerning the
consequences of the shift in lawmaking powers beyond the nation state for
fundamental aspects of the quality of law, such as the democratic nature of the
decision making, the legitimacy of the bodies that create the norms, and their
accountability. Jan Smits argues in Chapter 1 that, even though one effect of
globalization is that it may not always be formally democratically elected

parliaments that create norms in private law, at the normative level this does
not necessarily mean that the decision making is undemocratic. Smits argues
that one has to look carefully at the goal of democracy as far as norm creation
in the area of private law is concerned, and he holds that the fact that, as a
result of globalization, other actors than traditional national states increasingly
create the norms should not necessarily be problematic, as long as the func-
tions of democracy are fulfilled through other instruments. Smits illustrates
this by using the Draft Common Frame of Reference (DCFR) as an example.
This draft has been criticized in the literature for not being democratic, which
should, according to Smits, not necessarily be problematic as long as it is, as
it claims, a non-binding optional instrument which can be used as a source of
inspiration for contracting parties.
With respect to the question of what one can expect from the quality of
norm generation outside national parliaments, Deirdre Curtin shows in
Chapter 2 that insights from political sciences can provide a useful input to
judge the quality of the lawmaking process. She argues that it is possible to
develop public accountability beyond the nation state. She illustrates this argu-
ment with reference to the EU, where innovative arrangements have emerged
to hold agents accountable, even though she also cites examples where ex post
accountability of particular agents has failed.
2 REACTION TO GLOBALIZATION BY PRIVATE

ACTORS
As has already been mentioned, the shift to ‘lawmaking beyond the nation
state’ implies not only a shift to higher levels of governance such as interna-
tional organizations but also a shift towards an increasingly important role for
non-state actors that seem to have lawmaking powers. In some cases, one can
identify the increasing role of private actors in lawmaking activities at the
policy level in their increasing use of self-regulation, soft norms and trade
customs. The importance of these instruments is clearly explained in Chapter
4 by Sieg Eiselen, who reiterates that the involvement of bodies other than
national states in the creation of international trade law raises questions from
the angle of democratic principles. Interestingly, both Bas Steins Bisschop (in
Chapter 8) and Philip Sutherland (in Chapter 9) point to the development of
codes of corporate conduct and corporate social responsibility, whereby (orga-
nizations of) multinational corporations in fact create norms as alternatives to
lawmaking by the nation state.
It may be clear that the increasing involvement of non-state actors (partly
resulting from globalization, but partly also unrelated to it) raises questions of
democracy, legitimacy and accountability that exceed the mere shift to state
actors or international organizations at a higher level of governance. Deirdre
Curtin explains in Chapter 2 that in the field of private lawmaking the mixed role
of public and private actors is often salient, referring (like Jan Smits in Chapter
1) to the Draft Common Frame of Reference to show how a group of private
individuals (experts) or a study group can draft a document that is afterwards
‘rubber-stamped’ by the European Commission as a supranational public actor.
3 REGULATION AND CONTROL

Some undoubtedly perceive the abovementioned shifts of lawmaking powers
to private actors as undesirable and to some extent even scary, since regulation
no longer seems to be the monopoly of the nation state. However, this devel-
opment may also inspire thinking about new methods and instruments to
control these non-state actors involved in private lawmaking. Philip
Sutherland points out (in Chapter 9) the important role of multinational corpo-
rations and argues that it is not as clear as one may think at first blush how the
increasing influence of these MNCs should be constrained. A control model
would, especially in the wake of the financial crisis, weigh in favour of more
stringent regulation, but the possibilities and real powers of the nation state to
control corporations acting internationally may be limited. Even though there
is some scepticism concerning the effectiveness of codes of corporate conduct,
Bas Steins Bisschop shows in Chapter 8 that it may be interesting to think
about entirely new instruments to control activities of MNCs, such as a truth
commission, according to the South African example.
4 PRIVATE–PUBLIC LAW
Many of the chapters also (implicitly and explicitly) make clear that the tradi-
tional distinction (at least in legal systems with a civil law tradition) between
private and public law has become increasingly blurry. This is not surprising,
since many contributors point to the fact that traditional tasks of the nation
state such as lawmaking (public law) are increasingly no longer the monopoly
of state actors and have partially shifted to private actors. The increased
reliance on self-regulation, soft law and codes of corporate conduct shows that
traditional lawmaking powers have shifted to non-state actors. Other chapters
show that there is often such a strong interdependency between private and
public law that one could speak of grey zones rather than analytically distinct
concepts. For example, in Chapter 11 Lindenbergh addresses the influence of
fundamental rights in private law, a process that has been described as the
‘constitutionalization’ of private law. Jaap Spier similarly shows how activist

judges could use a private law concept such as liability to force not only emit-
ters of greenhouse gases but also governments to reduce greenhouse gases
fundamentally in order to mitigate the problem of climate change (Chapter
13). Faure also argues in Chapter 12 that traditional distinctions, for example
between international (environmental) law and national (private) law, become
increasingly blurry. Even norms of international law (which traditionally only
bound nation states) are now used by national judges in private law suits to
construct liability of (foreign) polluters.
The interdependencies between private and public law become especially
clear in the chapters devoted to public law in Part III. Geo Quinot makes clear
that international financial institutions promote active participation of the state
as market player (Chapter 7), partly as a result of globalization. Interestingly,
Quinot also argues that, whereas the national state may lose political power to
other actors (see Section 1 above), the increased levels of state commercial
activity can be viewed as an attempt of the state to regain (market) power. The
private law form is therefore also increasingly used to fulfil public functions.
This involvement goes, so Quinot shows, far beyond the ‘traditional’ area of
public procurement. The emergence of various public/private partnerships
(also with respect to public activities such as schooling, hospitals and so on)
raises questions about the rules that control state commercial activities. The
combination of contract law and administrative law which may be necessary
to regulate the role of the state as market player may pose specific challenges.
This is made equally clear in Chapter 5 by Frits Stroink, who also argues that
administrative law and the administration in general are increasingly influenc-
ing private legal relationships. An issue that inevitably comes up in that
respect is to what extent it is useful and possible to develop a ‘global admin-
istrative law’, as was attempted in a well known NYU project. Curtin refers in
Chapter 2 to this experiment as a helpful perspective on an emerging culture
of administrative law, but Stroink stresses in Chapter 5 that, while this concept
may indeed be theoretically challenging, the results are still quite preliminary.
In Chapter 6 Lourens du Plessis argues that globalization of public law
norms is sometimes related to the role of international law (a higher and more
centralized level of lawmaking), but that it is also sometimes linked to the use
of comparative analysis of law, which is something completely different. As
different procedures of constitutional and human rights interpretation, they are
‘different modes of access to a transnational legal and constitutional context’.
The danger of sacrificing diversity and uniqueness on the altar of transnational
convergence exists in both cases, although the strategies and methodologies
differ. Du Plessis argues in favour of a methodology of legal and constitutional
interpretation that would prevent unnecessary loss of diversity purely for the
sake of convergence.
5 CONVERGENCE, DIVERGENCE, HARMONIZATION

The question of the usefulness of global administrative law as a theoretical or
policy concept relates to another issue addressed by contributors, namely to
what extent globalization (of trade) has also led to a globalization of law. In
that respect a distinction is made between the question of whether globaliza-
tion has, in addition to a shift towards a higher level of governance, that is
centralization, also led to convergence of norms and the question of whether
such a convergence is desirable. Contributors distinguish the positive question
(whether one can observe convergence of norms in practice) from the norma-
tive issue (whether this convergence is desirable). Sieg Eiselen clearly shows
in Chapter 4 that in the domain of international trade law there have been a
variety of (state initiated and soft law oriented) projects towards harmoniza-
tion of standards. To some extent, the UN agency UNCITRAL has been the
motor behind these events; a similar role has also been played by the
International Chamber of Commerce; but Eiselen argues that some harmo-
nization has indeed taken place. Interestingly a similar conclusion is reached
by C.H. van Rhee on an area that is traditionally thought to be strongly linked
to national legal cultures, namely civil procedure. Van Rhee argues (Chapter
10) that some of the traditional differences between jurisdictions from differ-
ent families are becoming less pronounced as a result of globalization and
convergence. The evidence seems to be less conclusive as far as corporate law
is concerned. Both Steins Bisschop (Chapter 8) and Sutherland (Chapter 9)
distinguish between different models of corporate governance (mainly the
well-known distinction between the stakeholder and the shareholder models),
but whereas Steins Bisschop seems to argue that some convergence has in
recent years taken place between these models, Sutherland seems to stress that
distinctions are still real.
More difficult is probably the question of whether convergence of norms
(sometimes referred to as harmonization) can be qualified as desirable at the
normative level. This should, so it is argued by many contributors, be distin-
guished from the question of whether a shift to a higher legal order is desir-
able. For example, Faure argues (Chapter 12) that, given the transboundary
nature of environmental problems, a shift to a level of governance high enough
to deal with transboundary problems may be indicated, but that in theory the
contents of the norms could still be differentiated, taking into account location
specific (and cultural) differences. For some (especially lawyers), centraliza-
tion is equal to harmonization, resulting for example in a drive by centralized
institutions such as the EU towards harmonized rule making. In some areas
where differences between legal rules inhibit globalized trade, harmonization
may indeed be meaningful. Thus Eiselen makes a strong case (Chapter 4) in
favour of harmonization of standards for international trade. Similarly, van
Rhee argues (Chapter 10) that some harmonization of procedural laws may
facilitate transboundary civil procedure.
From an economic perspective, Van den Bergh (Chapter 3) is far more crit-
ical of generalized harmonization, pointing out the heterogeneity of preferences
and the advantages of decentralized information and innovation. This corre-
sponds with an often heard concern that harmonization may not respect the
benefits of cultural diversity or that (perhaps worse) harmonization may lead to
the imposition of a (dominant) Western culture, thus (once more) disrespecting
cultural differences. The level at which law should be made is, as is shown by
Curtin (Chapter 2), also closely related to the question of accountability. The
more public powers are shifted away from the people concerned, the more this
may result in gaps in the accountability of (public) actors for the exercise of
authority. These arguments from political science (Curtin) and economics (Van
den Bergh) thus point to the necessity to be more cautious (especially at the
European level) with the overall tendency towards convergence and harmo-
nization that disrespect differences in legal cultures and values.
The question of to what extent a global culture of legal values indeed exists
also arises in the area of the protection of human rights, as is made clear by
Lourens du Plessis (Chapter 6) and Siewert Lindenbergh (Chapter 11).
Discussing various cases where private law rights were either enforced or
limited on the basis of human rights, Lindenbergh rightly points to the fact that
these (Dutch and German) cases were based on a particular interpretation of
human rights in those countries, whereas these interpretations may not be
shared by all. Du Plessis (Chapter 6) similarly shows how unthinking confla-
tion of reliance on international law and constitutional comparison could under-
mine respect for local context and national or cultural differences and variety.
6 REINSTALLING LEGITIMACY AND

ACCOUNTABILITY
A shared view coming (at least implicitly) from many of the chapters is that
there is a general fear, as was mentioned above, that one effect of globaliza-
tion (in the sense of lawmaking beyond the nation state) may be that public
accountability and legitimacy of private lawmaking may be reduced. It is
related to the issue of to what extent a shift to other actors than the nation state
necessarily leads to greater reliance upon other instruments of regulation and
control (Section 3 above). As was made clear above, authors can think differ-
ently about whether there is a problem of accountability and legitimacy and
how accountability and legitimacy of private lawmaking could be increased.
As far as the first question is concerned, we can once more refer to Chapter
1, where Jan Smits argues that some commentators assume too easily that the
mere fact that a document such as the Draft Common Frame of Reference was
drafted by an academic study group signifies a problem from a democratic
perspective. Deirdre Curtin also argues in Chapter 2 that other instruments could
increase public accountability even when private lawmaking does not originate
from the traditional nation state. However, she equally makes clear that the exam-
ple of the European Union shows that to some extent still much is left to be
desired in that respect. Various contributors discuss different techniques to rein-
force the accountability and legitimacy of the process of private lawmaking in
cases where lawmaking takes place beyond the nation state. For example, Frits
Stroink (Chapter 5) highlights the importance of general principles of adminis-
trative law and more particularly the legality principle, which indicates that in a
democracy the powers of the administrative authority are essentially limited.
Interestingly, Sieg Eiselen points to the fact (also suggested by Smits in
Chapter 1 and Curtin in Chapter 2) that, even if norms are generated through
so-called soft law (in the case of harmonization of international trade law), the
drafters will ensure that the harmonizing agent is sufficiently representative of
all the stakeholders in the field. Eiselen shows (Chapter 4) that the most
successful of the harmonizing instruments were remarkably also those that
were built on basic democratic principles. As long as private law legal norms
emerging from other sources than the nation state are still created on democ-
ratic principles, the shift of lawmaking powers to non-state actors should
therefore not necessarily be problematic. Furthermore, both Bas Steins
Bisschop (Chapter 8) and Philip Sutherland (Chapter 9) argue that soft law
instruments such as codes of corporate governance and corporate social
responsibility could be introduced as (soft law) mechanisms to control the
behaviour of multinational corporations to an extent that formal legislation
would perhaps not be able to do.
Lourens du Plessis (Chapter 6) and Siewert Lindenbergh (Chapter 11) raise
the question of to what extent human rights can be invoked as (harmonizing)
principles to correct lawmaking or other behaviour by non-state actors where
necessary. They show that, even though the human rights perspective has a lot
of potential, there are limits as well, more particularly related to their inher-
ently vague nature and to the already mentioned question of whether these
rights can always be regarded as carriers of universal values, notwithstanding
differences between legal cultures.
7 PROCEDURAL ISSUES
Many contributors stress questions of a procedural nature, both procedural in
the broad constitutional sense (who sets the agenda for private lawmaking)
and in a more narrow sense (referring to issues of civil procedure).
One of these questions concerns the influence of globalization on access to

justice, which Frits Stroink refers to as one of the important principles of
administrative law (Chapter 5). Michael Faure notices (Chapter 12) how
(some aspects of) globalization may endanger access to justice and public
participation in environmental matters. This issue is also at the core of the
challenging contribution by Jaap Spier (Chapter 13) on judicial activism.
Where some have questioned to what extent issues related to globalization
affect the traditional trias politica, Spier has no doubt that it is the task of the
judiciary (irrespective of whether or not the legislative branch takes its respon-
sibility) to act and protect the globe from really threatening problems like
climate change and poverty.
Globalization (of trade) unavoidably creates specific challenges for trans-
boundary civil procedure. Remco van Rhee explains (Chapter 10) that this has
led to the creation of principles of transnational civil procedure. These princi-
ples, so van Rhee shows, go far beyond the international context and may also
be of importance in national reform projects, thus potentially leading to further
convergence of norms of civil procedure.
An interesting question is the role of arbitration. The lex mercatoria
referred to by Sieg Eiselen (Chapter 4) is effectively applied in some cases of
international commercial arbitration, raising interesting questions for the
future of arbitration and more particularly whether, in legal systems where
there may be less confidence in the judiciary, arbitration can provide a valu-
able alternative. However, given the price of arbitration, some may doubt that
this is an instrument that can fundamentally contribute to access to justice for
the poor. Interestingly Faure also shows in Chapter 12 that international adju-
dication of transboundary pollution cases (between states) takes place rarely
via the formal circuit (of the International Court of Justice) and more often via
arbitration, which seems to suggest that arbitration is a more appropriate
instrument to deal with global challenges.
8 REMAINING ISSUES AND CHALLENGES

It may be clear that the subject of the influence of globalization on private
lawmaking is so broad that the contributors to this book did not aspire to
provide final answers to the question this relationship raises. The goal of this
book is on the one hand to contribute to the setting of the research agenda by
indicating that globalization indeed poses specific problems that need careful
attention. Moreover, the contributors have also aimed at taking the debate
further by providing some indications of specific questions that result from
globalization and its effect on private law. Hence the (modest) ambition of this
book is to show ‘the way forward’ and not to provide final answers.
The researchers involved in the project that gave rise to this book realize
that there are still many issues that need to be addressed more carefully and
they hope to have the occasion to address (some of) these issues, preferably of
course in collaboration with other research groups interested in similar issues.
At the theoretical level further research could for example be undertaken into
common values and how these may affect private lawmaking. Much of the
debate on private lawmaking has focused on harmonization of private law in
Europe. The question is to what extent European (legal cultural) values are
comparable to those in for example Africa, the Americas or Asia. Moreover,
the question of which effects of globalization on private lawmaking are
(normatively) desirable and which are less desirable still needs further atten-
tion and refinement.
The question also arises as to whether, given the shift of powers for private
law lawmaking beyond the nation state, it can still be guaranteed that the
norms that result from this process are democratic, legitimate and in the public
interest. Some first steps to answer this important question are taken in this
book, but this issue definitely still deserves more attention.
Moreover, some of the general (theoretical and policy oriented) questions
concerning globalization and private law could also be applied to specific
problems, such as poverty and climate change and the challenges posed by the
current financial crisis. These major global problems provide excellent oppor-
tunities to test whether some of the theoretical perspectives provided in this
book could be applied in a meaningful way to address these global issues.
We hope that this book provides a fruitful contribution to the debate which
will, given the many global problems and challenges that still exist, undoubt-
edly continue.
REFERENCES
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Lovell (ed.), (Mis)recognition, Social Inequality and Social Justice, London; New
York: Routledge, pp. 17–35.
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Sovereignty and its Discontents: On the Primacy of Conflict and the Structure of the
Political, Social & Legal Studies, 16, pp. 149–52.
Smits, J. (2007), ‘Lawmaking in the European Union: On Globalization and Contract
Law in Divergent Legal Cultures’, Louisiana Law Review, 67, pp. 1181–1203.
Index
Aarhus Convention 404, 415–16 Afghanistan 117
abortion 245 Africa 248, 269, 427
academic lawyers: Draft CFR 15–16, see also individual countries
37–8 agent–principal problem 62, 272, 279,
access to justice 140, 351 283
environmental issues 403–4, 415–16, Albania 117
417 Albers, P. 348
accountability 22, 32–3, 50–51, 416 Alchian, A.A. 272, 273, 279
corporate law 218, 220, 226, 304 Alston, P. 299
definition of 20–21, 45–6 alternative dispute resolution (ADR) 348
Draft CFR 22, 23–4 arbitration see separate entry
environmental law 407, 409, 410, conciliation 115–16, 349
416, 417 mediation 316, 355, 361
governance 32–3, 40–41 altruism 189
actors 34–8 Amazon 88
instruments 39–40 AMD (Advanced Micro Devices) 233
multi-level 33–4 Anant, T.C.A. 446
legitimacy and democracy in EU Andersen, C.B. 104
41–5, 50–51, 407 Andrews, N. 343, 351, 357, 358, 361
market 23–4, 27 Anglo-American 285
regulators 78 Annan, K.A. 259
relationships 45–7 antitrust/competition law 61, 62–3, 379
as a social relationship 49–50 apartheid 152, 247
state commercial activity 189, 191, applicable law 98–9, 125, 302
192, 196 civil procedure 344, 349, 350
types of 21 transboundary pollution 393
as a virtue 47–8 arbitration 110, 117–18, 313, 348, 359,
accounting/bookkeeping scandals 232–3, 360
234–5, 241, 242, 243 International Court of Arbitration 119
accounting firms, international 296 state commercial activity 199–200
Ackermann, L.W.H. 170, 171, 173, 174, Trail Smelter case 403
177 UNCITRAL 115–16
administrative law 139–40 Model Law 111, 116, 118
contracts between administration and UNIDROIT 125
citizen 140–41 Arcuri, A. 394, 405
global 51, 141–4 Argentina 121
state commercial activity and 183–6, Armenia 111
203–4 Armour, J. 219, 300
actions of the state 186–7 Arnould, J. 188
applicable norms 187–93 Aronson, M. 201
enforcement of norms 193–200 Arora, N. 444
private and public in law and Arrowsmith, S. 188, 190, 191, 198, 199,
social practice 201–3 203
469
Arthurs, H. 183, 185 Baxter, L.G. 196, 201

Ashdown, P. 246 Baysinger, B.D. 301
Asia 427 Bazinas, S.V. 104
Southeast 389 Bebchuk, L. 285, 295, 301
see also individual countries Becker, R.A. 391
Asser, W.D.H. 346, 437 behavioural economics 278–9
Atiyah, P.S. 196 Belarus 111, 125, 352
Aubert, Jean-Luc 433 Belgium 345, 397–8, 442, 443
Auby, J.-B. 141 Bell, J. 432, 436
auditing/auditors 296, 297, 320, 324 Ben-Shahar, O. 23
August, R. 97, 110, 113, 114, 116, 120, Benson, P. 379
121, 122 Benz, A. 35
Australia 109, 111, 112, 117, 288, Berle, A.A. 225, 276
320–21, 428, 434 Bermuda 112
Austria 109, 111, 125, 346, 347 Bernitz, U. 244
Ayres, I. 413 Bernstein, L. 69
Azerbaijan 111, 117 Besselink, L. 32
Bhagwati, J. 266, 387
Backer, L.C. 97, 99, 256, 257, 258, 265, Bianca, C.M. 35, 101, 102, 103
266, 267, 269, 271, 274, 275, 276, bilateral investment treaties 313
278, 284, 285, 286, 290, 294, 300, Birnie, P.W. 384
302, 303, 306, 307, 308, 309, 310, Black, B. 218
313, 314, 317, 318, 319, 321, 322, Black, J. 20
326, 327, 328, 329 Blackman, M.S. 297
Bahrain 111 Blackstone 233
Bainbridge, S.M. 274, 290, 292 Blagescu, M. 48
Bakan, J. 270, 275 Blair, M.M. 272, 273, 275, 277, 279,
Baker, S. 384 280, 281, 282, 319, 322, 323, 325,
Banakis, S. 375 326
Bangladesh 111, 117 Blair, Tony 323
Bank of Credit and Commerce Blasé, F. 101
International 233 Bohmann, J. 45
bankruptcy 227, 231 Bolton, P. 184, 190, 191, 192
banks 230–31, 234, 238, 240–41, 257, Bonell, M.J. 104, 107, 113, 125
450 bookkeeping scandals 232–3, 234–5,
documentary credits: UCP rules 113, 241, 242, 243
120, 122 Botha, H. 186
Germany 232 Botha, N. 156, 166, 178
India 220 Bottomley, F. 328
licences 139–40 Bovens, M. 48, 49, 407
remuneration 231, 236, 238–9, 240, Boyd, J. 408
241, 246 Boyle, A. 393, 399, 403, 413
Russia 219 brands 257, 318
Spain 232 Brandsma, G.J. 50
supporting legal remedies 243–5, 250 Branson, D.M. 258, 260, 261, 262, 263,
transition 245–9 265, 266, 267, 268, 269, 270, 273,
Barkhuysen, T. 371 274, 275, 282, 283, 284, 285, 286,
Barnard, C. 78, 301 288, 290, 291, 292, 293, 294, 295,
Barroso, José Manuel 239 298, 299, 302, 305, 325
Baums, T. 226 Bratspies, R.M. 384, 403
Index 471
Bratton, W.W. 271, 272, 276, 277, 278, CERES 323

281, 290, 292, 295 Chayes, A. 410
Braucher, R. 101 Cheadle, H.M. 170, 172
Brazil 103, 233, 258, 260 Cheffins, B.R. 295
corporate law 217–18, 222, 235 Chernobyl incident 403
bribes 268, 286–7, 320 Cheung, S. 271
Briner, R. 117 children 444
British Virgin Islands 117 Chile 111, 248, 305
Brown, L.N. 188 China 103, 111, 117, 233–4, 258, 260
Brown, R.S. 402 corporate law 220–22, 235
Brunnée, J. 398 Choudhry, S. 177
Bryde, B.-O. 150, 153, 173, 175, 177 Choudhury, B. 200
Bugge, H.C. 384 Christiansen, T. 47
Bühler, M.W. 200 Chung, J. 234
Bulgaria 111, 395 Citigroup 233
Bunn, I.D. 321 civil law 15, 24–5, 26, 98, 188–9, 200,
burden of proof 358 430–31
bureaucracies 79 CISG 104
Burmistrova, M. 219 civil procedure 343–4, 346, 357, 358
Burnham, W. 343 French and German codes 101
business-to-business (B2B) and fundamental rights 376
business-to-consumer (B2C) legal certainty 67
relations 87–8 civil procedure 343–5, 361
see also contract law harmonization 346
Busnelli, F. 442 Europe 346–7, 350–57
Busuioc, M. 50 worldwide 357–61
Buxbaum, R.M. 271 national systems
Byers, E. 270, 276, 277, 284, 289 competition between 348–9
law reform 345–8
Cadiet, L. 346 Clapham, A. 376, 449
Cafaggi, F. 15, 18, 33 classification of goods for tariff purposes
Cambodia 111 126–7
Cameron, B. 99 Clémentel, Etienne 117
Camesasca, P. 63 climate change/global warming 65, 388,
Campbell, T. 434 394, 401, 416, 459
Canada 111, 112, 285 emission trading schemes 390
Cane, P. 201 judicial activism 446, 448–51
Cape Verde 117 see also environmental law
capital punishment 147, 164 clothing/textile sector 319, 320, 324–5,
Cardozo, B.N. 434 389
Cariolou, L. 433 Coase, R.H. 64, 224, 271–2, 413
Carlyle 233 Cockrell, A. 189, 201
Cary, W.L. 301 codex alimentarius 18
Cassese, S. 51, 402 Coffee, J.C. 233, 295, 301
Cassis de Dijon judgment 73 Collins, H. 184, 185, 190, 193, 194, 196
Castellucci, I. 125 Collyer, G. 122
Castermans, A.G. 380 Colombia 117
Caux Round Table Principles for colonization 445
Business 238, 319 commercial law see contract law;
centralization see decentralization versus corporate law; international trade
harmonization law, harmonization of
Committee of European Securities externalities, interstate 83

Regulators (CESR) 36–7 free choice of law 60
common law 15, 26, 98, 109, 188, 200, heterogeneity of preferences 89
203, 431 regulatory competition 75, 84, 85,
CISG 104 90–91
civil procedure 343–4, 346, 357, 358 standardized contracts 69, 86, 87,
corporate law 227–8 88
precedent 67 fundamental rights 369–70
statutory interpretation 162 relational contracts 87
competition, jurisdictional/regulatory state commercial activity 189–90,
23–4, 27, 58–9, 63, 69–70, 84–5, 191, 193, 194, 195–6, 201, 203
90–91 UNIDROIT Principles of
heterogeneity of preferences 59–61, International Commercial
89 Contracts 113, 124, 125
level playing field 70–71, 79 see also consumer protection;
MNCs: regulatory arbitrage 268, international trade law,
284–5, 286, 289, 290, 300–302 harmonization of
race to bottom or top 69, 75–7, 84, contract theory of the firm 224, 225,
85, 90, 92, 390–92, 395–6, 399 271–4, 276–9, 280, 281–2, 283,
types of 72–5 290–92, 294, 295, 328
competition law 61, 62–3, 379 Convention on the Carriage of Goods by
conciliation 115–16, 349 Sea (1978) 116
constitutional law 457, 458 Convention on International Interests in
South Africa see transnational Mobile Equipment 124
contextualization: Convention for the International Sale of
constitutional interpretation Goods (CISG) 25, 102–6, 107,
constitutionalization of corporate law 108, 119, 128, 212
233, 234 case law 104–5, 108–10
consumer groups 78, 84 Convention on the Recognition and
consumer protection 25, 27, 84 Enforcement of Foreign Arbitral
economic analysis 60, 79, 86, 87–8, Awards (1958) 110, 117–18
89 Copeland, B.R. 384, 390, 392, 397
information asymmetries 90, 91 Corbin, A.L. 101
regulatory competition 75, 84, Corder, H. 170, 428, 443
90–91 Corell, H. 449
European Union 37, 40, 58, 80, 88, corporate law 211–12
89, 91, 92 BRIC countries 217–22
Consumer Sales Directive 35–6, challenges 230–35
83 constitutionalization of 233, 234
learning processes 90 creditor protection 223
regulatory competition 75, 84 crises: limitations of legal remedies
consumers and fair trade 380 236–43
contract law 39, 435, 458 crises: supporting legal remedies
applicable law 98–9, 302 243–9
democratic legitimacy 16, 17, 27 regulation, supervision,
design or organism 25–7 confidence and TRC
market accountability 23–4 249–51
participation 25, 27 delegated management 215–16
economic analysis 79, 86, 87–8, 91, directors, duties of 227–8, 282, 294
92 economic analysis 60, 61, 85
Index 473
integrity 212, 235, 238, 242, 243 reputation mechanism 88

legal personality 215, 224, 225 Russia 218, 219
limited liability 215, 223 supporting legal remedies 243–51
MNCs see multinational corporations trust 303
shareholders see separate entry United Kingdom 293
stakeholders 222–3, 229–30, 249, United States 230–31, 292–3
268, 319 Critical Legal Studies 16
corporate interest 229 Croatia 111, 117
corporate social responsibility see Crown 443
separate entry cultures 261–2, 345
main players 223 fundamental rights 378–9, 380
multi-stakeholder networks 323–6 legal 414–15
shareholder model, enlightened multinational corporations 269–70,
227–8, 294 301, 320
shareholder and stakeholder Curtin, D. 17, 34, 41, 45, 51
models 212, 223–30 customary international law 146, 149,
team production theory 279–82 152, 154, 162
theory see corporate law theory under customs duties 114, 125–7
multinational corporations Cyprus 111
transferable shares 216
VOC: history and present 213–17 Dahl, R. 19
corporate social responsibility (CSR) Dalhuisen, J.H. 97
224, 228–9, 297 damages 60, 371–2, 378, 406, 408–9,
convergence of national laws 291–4, 442, 443
297 Danielsen, D. 284
corporate law theory 274–6, 277, D’Arcy, L. 113, 116, 118, 120, 121
278, 280, 282–3 Dash, M. 231
multinational corporations 288–9, David, R. 107
300, 310, 321–2, 329, 400 Davies, A.C.L. 190, 195, 198, 201
codes of conduct 18, 317–21, Davis, Mike 445
324–5 De Búrca, G. 18, 19, 20, 22, 45, 51
corruption 268, 286–7, 320 De Feyter, K. 183, 200
cost and freight (C&F) 120–21 De Jong, A. 233
cost insurance freight (CIF) 120–21 De Larosiere, J. 37
Council of Europe see European De Ly, F. 98
Convention on Human Rights; De Prado, C. 384
European Court of Human Rights De Waal, J. 171
Craig, J.D.R. 18 De Wet, J.C. 195
Craig, P. 51 decentralization versus harmonization
credit crunch 211, 217, 222, 226, 234, distributional goals 58
240–43, 329 economics see economic criteria:
bank remuneration 231, 236, 238–9, optimal regulatory level
240, 241, 246 environmental law 405–6, 411, 412,
confusion 238–40 414–15, 416–17
ex post and hindsight-biased Deckers, F. 240
judgments 236–7, 239, 243 Delbrück, J. 18, 20, 27
France 232 deliberative democracy 21, 43–4
India 220 democratic legitimacy 15–17, 27–8,
integrated markets 97 41–5, 50–51, 407
location of incorporation 302 corporations 277
multinational 267, 269, 299, Duruigbo, E. 265, 269, 286, 314

303–4, 378 Dworkin, R. 26, 431
Draft CFR 15–16, 22, 27–8
accountability 23–4 e-commerce 110, 112, 115–16, 117, 118
design or organism 25–7 e-signatures 118–19
participation 24–5, 27 Easterbrook, F.H. 271
environmental law 407, 410, 416 Eastern Europe 347, 368, 389, 395
functions of democracy 19–22 Ebbesson, J. 400
fundamental rights 378 Eberlein, B. 17
globalization 261, 263 Ebert, I. 450
international institutions 299 Eckes, C.H.R. 402
international trade law, harmonization economic analysis and contract law 194
of 110–11, 112, 113, 122, economic criteria: optimal regulatory
127, 128–9 level 57–9, 91–3, 417
judicial activism 448 externalities, interstate 63–5, 81–3,
law without a state 17–19 387–8, 389, 390, 393
terminology 20 heterogeneity of preferences 59–61,
see also accountability 89
Denmark 111, 353, 397 information benefits and costs 62–3,
Depoorter, B. 65 89, 90, 91
developing countries 142, 143, 324, 327 innovation 63, 85, 89–90
climate change 427, 446, 449 lessons for private law 80–81
environmental standards 392, 395, benefits of decentralization 89–91
399–400 cost savings 85–9
foreign direct investment of MNCs externalities, interstate 81–3
266–7, 268, 269, 270, 285, regulatory competition 84–5
286, 325 public choice perspective 77–80, 81,
headquarters of MNCs 285 82
Dewey, J. 271 regulatory competition 58–9, 69–70,
Dickerson, C.M. 266, 276, 277, 278, 321 84–5, 90–91
Dickson, B. 426, 428, 445 level playing field 70–71, 79
DiMatteo, L.A. 109 race to bottom or top 69, 75–7,
diplomatic protection 162 84, 85, 90, 92, 390–92,
directors, duties of 227–8, 282, 294 395–6, 399
discovery 343, 358 types of 72–5
distributive justice 26–7 scale economies 65, 66, 68, 86
Dodd, E.M. 276 transaction cost savings and removal
Doherty, M. 398 of trade barriers 65–9, 85–8
dolphins 397 education 160–61
Dominican Republic 111 Egeberg, M. 47
Doremus, P.N. 267, 270 Egypt 112
Douma, W.T. 388, 401 Ehlers 188, 195
Du Plessis, L. 152, 153, 155, 157, 162, Einstein, A. 174
163, 164, 166, 169, 171 Eiselen, S. 98, 103, 105, 109, 110, 120
Ducoulombier, P. 429 electronics industry
Dugard, J. 107, 108, 152, 156 Code of Conduct (EICC) 319, 320
Dunleavy, P. 79 Ellian, A. 247
Dunn, J. 19 Elster, J. 44
Dunning, J.H. 265 employment law 27
Dunoff, J.L. 395 Enron 233, 235, 240, 321
Index 475
environmental law 383–6, 435, 459 European Court of Justice (ECJ) 37, 67,
contribution to globalization debate 78, 81, 86, 369
415–17 Cassis de Dijon judgment 73, 74
economic analysis 76–7, 78 fundamental rights 370–71, 377
heterogeneity of preferences 61 multinational corporations 287–8
information asymmetries 62 trade–environment dispute 398, 416
environmental licences 139 transboundary pollution 393
globalization: influence on 400 European Free Trade Association 347
institutional 400–401 European Parliament 16, 37, 38, 41, 64,
procedural 401–6 80–81
globalization: influence on: European Union 458
normative analysis 406 accountability 23–4, 32–3, 46, 47, 49,
contents: differentiation of 50–51
standards 414–15 governance, shift in 34–8
institutional 406–12 hard and soft law 39–40
procedural 412–14 civil procedure 344, 346–7, 350–57,
influence of environmental issues on 359
globalization 382, 387–92 comitology committees 37, 49–50
influence of environmental issues on contract law 203
globalization: normative corporate law 232, 235, 292, 297
analysis 392, 394 Council of Ministers 37, 50
mobility of products, firms and Draft CFR 15–16, 22, 27–8, 37–8,
services 399–400 39–40
multi-level governance 392–4 accountability 23–4
race to the bottom 395–6 design or organism 25–7
trade–environment dispute 396–9 participation 24–5, 27
MNCs 268, 319, 322, 323, 325 economic criteria: optimal regulatory
differences in standards 389, level 57, 58, 60, 63, 80–81
390–92, 395–6, 399–400 competition law 61, 62–3
Eörsi, G. 110 innovation 90
Equator Principles 319, 320 interstate externalities 64–5, 82–3
Erasmus, G. 162, 163 market integration argument 58,
Erhard, W. 242 66, 68–9, 88, 91–2
Eritrea 117 public choice perspective 78, 79,
Estonia 112, 117 80
Esty, D.C. 393, 396 regulatory competition 70–71, 72,
ethics 195, 242, 243, 317 73–5, 76–7, 84–5
European Commission 16, 37–8, 40, 50, safety and health standards 63, 66
64, 68–9, 79, 80, 395 scale economies 66
European Competition Network (ECN) transactions costs 67, 86
37 environment 391, 392, 393–4, 395,
European Convention on Human Rights 396, 401, 406, 407
(ECHR) 152, 156, 434 centralization 412
Art 2: right to life 402, 433, 441 free trade 396, 397–8
Art 6: fair trial 140, 351–2 greenhouse gases 390, 427
Art 8: private and family life 402 protectionism 409
First Protocol Art 1: enjoyment of financial regulation of 234, 239
possessions 233, 371–3, 377 internal market 355
European Court of Human Rights 140, legitimacy and democracy in 41–5,
351, 369, 371, 373, 377, 402, 434 50–51, 407
mutual recognition 73–5, 77, 81, 93 Foster, K. 18

open method of coordination 37 France 125, 141, 288, 398, 430–31, 443
product liability 82–3, 85 civil procedure 345, 346, 347
proportionality principle 355 corporate law 217
public health 89 credit crunch 232
public procurement 188, 198, 199, judicial activism 442
202–3 state commercial activity 188, 196,
public–private interaction 188–9 200
social security 89 Vivendi Universal 233
subsidiarity principle 355 franchises 124
Evans, M.D. 99 Fraser, N. 457
eviction 458 fraud 286
ex works (EXW) 120–21 free on board (FOB) 120–21
experts 34, 35, 37–8 free riding 60, 78, 320
externalities 63–5, 81–3, 270 free trade 394, 396–9, 415, 416, 417
pollution 63, 64, 65, 387–8, 389, 390, Freedland, M. 188, 190, 196
393 Frentrop, P.M. 217
extractive industries 323–4 Freudenthal, M. 352
extradition 161 Fried, C. 27
Friedman, H.H. 230
fair trade 380 Friedman, M. 225, 272
Fanto, J.A. 279, 290, 291, 293, 295 Friedman, T.L. 256, 257, 258, 259, 260,
Farber, D.A. 22, 427 261, 262, 263, 264, 267, 285, 299,
Farrell, J. 413 302, 303, 322
Fasching, H.W. 347 fundamental rights in private law 367–9,
Faure, M. 61, 78, 81, 82, 87, 89, 384, 373–80
385, 388, 389, 390, 391, 392, 393, four illustrations 369–73
400, 401, 406, 409, 410, 437, 449 Furmston, M.P. 195
federal states: economic theory 63, 65
Felemegas, J. 125 Gabriel, H. 120, 121
Fenster, M. 21 Gaillard, E. 200
Ferrari, F. 104, 105, 109, 110 Gambia 117
Ferrarini, G.A. 233 game theory 69, 76
financial crises 97 Ganten, T.O. 371
credit crunch see separate entry Garn, G. 21
financial institutions Garoupa, N. 27
banks see separate entry Garro, A.M. 110
Equator Principles 319, 320 GATT (General Agreement on Tariffs
Fischel, D.R. 276, 282, 301 and Trade) 126
Fischer, F. 22 Geistfeld, M. 85
Fischer-Lescano, A. 24 Gelter, M. 224
Fischhoff, B. 237 Gerardin, D. 47
Flinders, M. 184, 185, 192, 204 Germany 61, 109, 112, 141, 248, 288
Follesdal, A. 384, 393, 407 civil procedure 344, 360
forced labour 446 Constitution 153
Ford Motor Company 228–9 Constitutional Court 369–70, 377
Forest Stewardship Council (FSC) 325 corporate law 217, 226, 232
Forsyth, C.F. 98, 99, 100 Hypovereinsbank 233
Fort, T.L. 257, 259, 260, 262, 264, 267, international law and individuals 403,
268, 269, 270, 277, 283, 286, 294, 412–13
299, 303 state contracts 188
Index 477
Gibbs, J.H.T. 436 corporate law 232

Gillies, P. 116 decentralization versus
Gilson, R.J. 290 distributional goals 58
Glaeser, E.L. 26 economics see economic criteria:
Global Accountability Framework 48 optimal regulatory level
global warming see climate change environmental law 405–6, 411,
globalization, characteristics and 412, 414–15, 416–17
evaluation of 97, 183–4, 255–64, environmental law 396, 405–6,
270 411, 412, 414–15, 416–17
GMOs (genetically modified organisms) legitimacy and level of 22
398, 450 public procurement 202–3
Goldring, J. 22 Harris, B. 428, 436, 440, 443, 445, 446,
Goode, R. 99, 107 449
Goodin, R.E. 183, 184, 191 Harrison, G. 184
Google 258 Hart, H.L. 432
Gopalan, S. 125 Hart, O.S.D. 277, 282
Gordon, J.N. 295 Hayek, F.A. von 26, 63
governance 32–3 Hazard, G.C. 357, 359
actors 34–8 hazardous waste 399
instruments 39–40 health and safety 63, 66, 86
multi-level 33–4 food safety 398
Grant, R.W. 46 Healy, P.M. 233
Greece 112, 443 Heine, K. 60, 72
Greenfield, K. 265, 273, 274, 278, 279, Heirbaut, D. 345
280, 282, 283, 288 Heldrich, A. 374
Greenpeace 322 Hemingway, J.M. 278
Greenspan, Alan 238 Hendrickx, R. 408
Greenstone, M. 391 Heringa, A.W. 399
Grimeaud, D.J.E. 414 Héritier, A. 22, 24
Grossmann-Doerth, H. 99 Hesselink, M.W. 16, 25, 38, 45, 47, 203,
Gruber, U.P. 98 379
Guatemala 112, 117 Heydon, J.D. 449
Gupta, J. 392 Hillemanns, C. 305, 307
Gurlit 188 hindsight wisdom or bias 236–7, 239,
Gustavsson, S. 44 243
Guyana 117 Hirst, P. 20
Guzman, A. 64, 65 historical wrongs 445–6
Hobhouse, S. 99, 107
Habermas, J. 19, 21 Hodes, L. 273
Hadfield, G. 23 Hoexter, C. 190, 201
Hague-Visby Rules 116 Holdsworth, J.L. 103
Hamburg Rules (1978) 116 Holmstrom, B. 281
Hamers, J.J.A. 228 Holocaust 446
Handl, J. 387 Holzinger, K. 77
Hansmann, H.B. 225, 273, 274, 277, Hong Kong 111
282, 290, 291, 293, 294 Honnold, J.O. 102, 103, 105, 120, 121
Harlow, C. 36, 196 Hooghe, L. 34, 407
harmonization Hopt, K.J. 291, 292, 294, 295, 296, 297,
civil procedure 346–7, 350–61 300
contract law 203 housing, right to adequate 159
Howse, R. 299, 383 interest groups

Huber, P. 105 public choice theory 77–80, 81, 82,
Huber, U. 120, 121 263, 269, 302, 412
human rights 89, 152, 175, 202, 261, International Atomic Energy Agency
457–8 (IAEA) 408
children 444 International Chamber of Commerce
corporations 244, 289, 294–5, 299, (ICC) 113, 115, 119–22
322, 325, 328–9, 379, 380 International Competition Network
United Nations 305–17 (ICN) 37
ECHR see European Convention on International Court of Justice (ICJ) 156,
Human Rights 404–5
environmental 402–3 International Covenant on Civil and
horizontal application 192 Political Rights (1966) 153, 351
judicial activism 449, 450 International Covenant on Economic,
life, right to 402, 433, 441, 444–5 Social and Cultural Rights (1966)
South Africa 247 152–3, 159–60
international and foreign law see International Criminal Court 314
transnational International Financial Reporting
contextualization: Standards (IFRSs) 296
constitutional interpretation International Labour Organization (ILO)
see also fundamental rights in private 304, 308
law International Law Commission 162
Human Rights Watch 321, 322 International Maritime Organization
Hungary 112 (IMO) 401, 406, 407
Hurst, Cecil 101 International Monetary Fund (IMF) 17,
Hypovereinsbank 233 184, 217, 298–9
International Organization for
In ‘t Veld, R. 246 Standardization (ISO) 325
India 103, 112, 233, 258, 260, 321 international trade law, harmonization of
corporate law 219–20, 222, 235 97–100, 127–9
judicial activism 444–5, 448 agents and their methods 114
indigenous communities 325 ICC (International Chamber of
individualism 189 Commerce) 119–22
inequality 260, 347 UNCITRAL 114–19
information 245, 258, 261, 264, 321, UNIDROIT 123–5
322 WCO (World Customs
access to environmental 404, Organization) 125–7
415–16 economic analysis 69
corporate disclosure 275–6 history of 100–106
economic criteria: optimal regulatory methods 106–7
level 66–7, 84 conventions 107–11
decentralized information 62–3, model laws or codes: countries
86, 89, 90 111–12
information costs 66–8, 78, 86, voluntary codes: individual parties
87, 91 113
Tiebout’s theory 60–61 International Tribunal for the Law of the
Inman, R. 65 Sea (ITLOS) 405
innovation 63, 85, 89–90 internet 87–8, 97, 105, 257, 258, 262
insolvency law 115–16 interpretation of conventions: CISG 109
insurance companies 139–40, 450 Iran 112
Index 479
Ireland 112 Khoza, R.J. 198

Israel 443 Kickert, W. 36
Italy 109, 232, 233, 344, 442, 443 Kindleberger, C.P. 231
Iyer, V. 444, 445, 449 Kingsbury, B. 20, 51, 141, 143
Kirk, D. 297
Jacobs, J. 404 Klein, Franz 346, 347
Jaffe, A.B. 76, 391 Klug, H. 167
Jaglom, A.R. 119 Kniec, K.D. 428
Jans, J.H. 396, 401, 402, 406 Koch, B.A. 442
Jansen, N. 26, 36, 407 Koenig-Archibugi, M. 183, 185, 186,
Japan 76, 103, 112, 117, 217, 233, 292 187
Jensen, M.J. 225 Kohler-Koch, B. 34, 44
Joerges, C. 36 Kolstad, C.D. 391
Johnston, J.S. 388, 413, 414 Korea, Republic of 112, 117
joint venture companies 216 Kortmann, S.C.J.J. 443
Jongbloed, A.W. 345 Kötz, H. 99, 101, 104, 107
Jordan 112 Koziol, H. 89, 443
judges 458 Kraakman, R.R. 61, 215
case management powers 344, 346–7, Kramer, E.A. 104
360 Kroeze, M.J. 237
compatibility of national law with EU Kronman, A. 26
and/or international law 402, Kumar, N. 220
412, 446 Kyrgyzstan 117
judicial activism, rule of law and
climate change 426–36, language 67, 262, 356, 358
447–51 English 97, 104, 105, 262
examples 437–46 Lasser, M.E. 430, 432
legislator and judiciary 446–7 Latin America 368
judicial review 188, 198–9, 402, 412 Latty, F. 18
transboundary environmental disputes Lavrysen, L. 389
405, 413 lawyers
juries 343, 358–9 academic lawyers: Draft CFR 15–16,
jurisdictional competition see 37–8
competition, jurisdictional/ international firms 296
regulatory League of Nations 123, 152
justice 26–7, 246, 247, 248, 250 leasing 124
legitimacy 20, 41–2, 246, 250, 251
Kahan, M. 301 corporate law and MNCs 303–4
Kaldor, M. 255, 259, 269 environmental law 407–8, 410, 416
Kamp, A.R. 101 European Union 41–5, 50–51, 407
Karunatilleka, E. 97 input 42–4, 48
Kassim, H. 47 judicial activism 448
Kazakhstan 117 NGOs 322
Keenan, P.J. 97 output 35, 36, 42, 43
Kell, G. 311 see also democratic legitimacy
Kenna, P. 97 Legrand, P. 67, 295, 406
Kennedy, D. 16, 189 Lehmann, K. 110
Kenya 112, 117 Lemke, P. 387
Kerber, W. 69, 72, 74, 84 Lesotho Highlands Water Project 268
Kerr, O.S. 433 Levitt, S.D. 245
lex fori rule 344, 349 Martiny, D. 100

lex mercatoria 69, 86, 98, 99, 101, 125 Mattei, U. 16
Licht, A.N. 273, 274, 276, 278, 281, Mauritius 117
282, 292, 293, 294, 295 Mayer, D.O. 258, 259, 261, 266, 268,
Liebenberg, S. 191 289, 326, 329
life, right to 444–5 Mazzacano, P.J. 98, 101
ECHR: Art 2 402, 433, 441 mediation 316, 355, 361
limitation periods 441–2 Meese, A.J. 272, 273, 280, 281
Lindahl, H. 457 Melé, D. 224
Lindblom, P.H. 344, 356, 357 Mendes, E. 101
Lindenbergh, S. 233, 374 Mendes, J. 44
Lithuania 112 Mensch, N.L. 287, 305, 307, 309, 317,
Livedoor Co. 233 318, 319, 323, 325
Lloyd, R. 48 mergers 63
Locré, J.-G. 431 Merill Lynch 233
Loof, J.P. 371 Merriman, J. 38
Lookofsky, J. 103, 105 Mertens, H.-J. 107
Lord, C. 42 mesothelioma 441
Lowenstein, L. 214 Mexico 76, 112, 117, 397
Lubbe, G.F. 191, 195 Michaels, R. 17, 19, 98, 99, 101, 265,
284, 286, 293, 297, 298, 300, 303
Macau 111 Milgrom, P. 69
McCahery, J.A. 295, 300, 301 Milhaupt, C.J. 295
McCrudden, C. 183, 184, 192 Miller, L. 203
MacDonald, E. 51 Millon, D. 271, 272, 273, 276, 277, 282,
McDonald’s restaurants 257, 259, 262 292
Macedonia, former Yugoslav Republic of mining companies 269, 319–20
112 Extractive Industries Transparency
McGrew, A. 183, 184 Initiative (EITI) 323–4
McHugh, J.M.H. 429 minorities 161, 168, 262, 320
McLoughlin, A.N. 266, 269, 286, 287, Mitchell, J.D.B. 188, 196
288, 314, 316, 320, 321 Mitchell, L.E. 261, 274, 275
McManus, F. 432 Mitchell, W.C. 263
Macrory, R. 401 Moldova 117
Madagascar 112, 117 Mongolia 117
Magnus, U. 101, 102, 103, 105, 106, 109 monopolies, natural 65
Mahoney, P.G. 295 Montenegro 117
Majone, G. 43 Montesquieu, C. 346, 430
Mak, C. 374 Moravcsik, A. 45
Malawi 117 Morgan Stanley 233
Mallin, C.A. 218, 219, 220, 221 Moseneke, D. 189, 191
Malta 112 Moses, L.A. 451
managerialism 237 Mostert, H. 368
Mandela, Nelson 247 Motala, Z. 156, 166, 178
Mander, J. 390 multidisciplinary approach 417
Markesinis, B. 170 multinational corporations (MNCs) 185,
Marks, S. 51 255, 328–30, 378, 457, 458, 459
Marsh, D. 184, 186 alternative regulatory systems
Marshall, J. 378 299–300, 302–4, 326–7
Martens, P. 384 competing rules 300–302
Index 481
international institutions 303, national executives and 32

304–17 nationalism 259, 263
multi-stakeholder networks 323–6 natural monopoly 65
non-governmental organizations Ndebele, N.S. 186
(NGOs) 321–2, 323, 326 Neethling, J. 443
self-regulation 18, 317–21 negligence 379, 441, 448
arbitrage, regulatory 268, 284–5, 286, Nehmelman, R. 374
289, 290, 300–302 neo-liberalism 263–4, 266–7, 288, 289,
China 221 299, 302, 329
codes of conduct 18, 238, 317–21, Nepal 117, 248
324–5 Nesteruk, J. 276
codes, corporate governance 234, Netherlands 25, 125, 231, 233, 288,
295–7 345
corporate law theory 271–83 administrative law and private law
behavioural economics 278 139, 140
contract theory 224, 225, 271–4, contracts between administration
276–9, 280, 281–2, 283, and citizen 140–41
290–92, 294, 295, 328 banks 238, 239–40
corporate social responsibility corporate law 211, 226, 232, 245
(CSR) 274–6, 277, 278, VOC: history and present 213–17
280, 282–3 environment 393, 401, 403, 413
team production 279–82 fundamental rights 371–2, 374, 378
form of regulation 283–4 international law and individuals 403,
convergence of national corporate
413
laws 290–97
judicial activism 437–40, 441, 443
international rules 298–9
network forms of governance 35–8
national law 284–9, 326
Neven, D. 78
globalization 255–64, 270
corporate law 265–70, 302–3 New Zealand 112, 117, 428, 443
tort claims against 287, 379 Nicaragua 112
Murkens, J.E.K. 169 Nieuwenhuis, H. 376
mutual recognition 72, 93 Nigeria 112, 117, 321
European Union 73–5, 77, 81, 93 Nike 229, 257
Nipperdey, H. 374
Nariman, F.S. 118 Niskanen, W. 79
Nasdaq 233 Noam, E. 77
nation states 24, 258, 259, 329, 401 Nollkaemper, P.A. 386, 393, 400, 403,
multinational corporations 267, 413
269–70, 321 non-governmental organizations (NGOs)
convergence of national corporate 321–2, 323, 326
laws 290–97 environmental 322, 323, 391, 393,
human rights 314–15, 316, 317 410, 412
regulation in national law 284–9, North, P.M. 98, 99, 100
326 Norway 112
state commercial activity see nuclear liability 401, 403, 407–9
separate entry
national parliaments Oates, W. 65, 81
debates on legislation 438 Oberhammer, P. 347
legitimacy of private law 15, 16, 17, OECD (Organisation for Economic Co-
18–19, 24–5, 27–8, 47, operation and Development) 287,
409–10, 416 297, 304, 308
Nuclear Energy Agency (NEA) 401, marine oil 401, 407–9

406, 407–8 transboundary see separate entry
Ogus, A. 23, 63, 71, 79, 89, 90, 396 Porter, G. 399
oil companies 269, 321, 408 Porter, M. 71, 384
Olaerts, M. 222 Portes, R. 258
Old Mutual 285 Portugal 103, 443, 450
Oly, G.G. 101 Posner, R.A. 429, 436
Oman 112 precedent 67
One World Trust 48 Prechal, S. 412
Orts, E.W. 266, 270, 286 pregnancy 370–71
O’Scannlain, D.F. 435, 436 Prentice, D. 228
Oshionebo, E. 268, 269, 310, 311, 312 pressure groups 77, 78, 81, 92
Ott, C. 68 Prévost, M.D. 396
Princen, S.B.M. 391
Page, E.C. 47 principal–agent problem 62, 272, 279,
Pakuscher, E.K. 195 283
Panagariya, A. 220 prisoners’ dilemma 76, 390
Papadopoulos, I. 36 privity of contract 195–6
Paraguay 112 product liability 82–3, 85
Parles, L. 235 property law 26
Parmalat 233 protectionism 97
participation trade–environment dispute 396–9,
transnational rules 20, 22, 24–5, 27, 409–10
43–4, 48, 51, 110, 112 public choice theory 77–80, 81, 82, 263,
Partlow, J. 217
269, 302, 412
paternalism 395, 400
public goods 187
path dependency 221, 224, 295
optimal provision of local 23, 59–61,
Peeters, M. 388, 404, 413
81
Pelinka, A. 19
Pelkmans, J. 74 public health 89
pension funds 450 public procurement 197, 198, 204
Peru 112 European Union 188, 198, 199,
Peters, A. 150, 156, 165 202–3
Peters, B.G. 187, 189, 192 see also state commercial activity and
Petersmann, E.U. 299 administrative law
Philippines 112 public–private partnerships see state
Philips 228–9 commercial activity and
Piergiovanni, V. 17 administrative law
Pikalo, J. 183
Pillay, S. 256, 259, 260, 261, 262, 284, Quinot, G. 186, 188, 190, 191, 193, 197,
285, 288, 299, 314 198, 200
Pinto, A.R. 255, 260, 261, 290, 292, 293,
295, 296 Rabel, Ernst 101
plant location 76, 84, 85 race to bottom or top see under
Polak, J.E.M. 429 competition, jurisdictional/
Poland 112, 117, 443 regulatory
political scientists 417 Rachlinski, J.J. 237
pollution racial equality 152
economic analysis 62, 76 Radé, C. 443
externalities 63, 64, 65, 387–8, Raes, K. 433, 449
389, 390, 393 Ramberg, C. 110, 120, 121
Index 483
Ratner, S.R. 257, 267, 284, 286, 287, Salzberger, E. 434

298, 305, 314, 317, 318, 321, 322, Sand, P.H. 407
325, 329 Sands, P. 384, 405
Rawls, J. 21 Sarbanes-Oxley Act 234–5, 278
reciprocal non-compliance 64, 65 Satyam 233
Redfern, A. 200 Saul, J.R. 256, 258, 259, 260, 261, 263,
Redmond, P. 257, 260, 265, 266, 267, 264, 266, 267, 268, 269, 270, 286
286, 287, 288, 298, 305, 308, 313, Saunders, C. 169, 176
314, 317, 318, 319, 320 scale economies 65, 66, 68, 86
reflexive regulation Schäfer, H.B. 88, 395, 400
state commercial activity 193–5, 203 Scharpf, F. 43
regulators 36–7, 78 Schedler, A. 21
Reid, Lord 426 Schiek, D. 18
relational contracts 87 Schlechtriem, P. 101, 102, 103, 105, 106,
reputation mechanisms 64, 65, 69, 86, 110
87, 88, 91 Schmid, C. 36
retaliation 64, 65 Schmidtchen, D. 69, 87
retroactive law 244, 440 Scholte, J.A. 255, 256, 257, 258, 259,
Revesz, R. 76, 390, 396 260, 261, 262, 263
Rhinard, M. 47 Schröder, M. 141
Rhine river 64, 393, 394, 403, 404, 413 Schwenzer, I.H. 98, 105, 110
Richardson, J. 47 Scotland 112
Ringhand, L.A. 429 Scott, J.S. 396
Roach, K. 428, 430, 434, 436 Scott, W.R. 20
Rödl, F. 19 security interests 115–16
Rodrick, D. 264 Seddon, N. 195, 201
Rodriguez, A.M. 98 Seerden, R.J.G.H. 140, 142, 402
Roe, M.J. 301 Seita, A.Y. 4
Rogers, W.V.H. 89, 431, 442 self-regulation 18, 120, 193, 325
Roman law 100–101 multinational corporations (MNCs)
Romania 117, 395 codes of conduct 18, 238, 317–21,
Romano, C.P.R. 405 324–5
Romano, R. 85 codes of corporate governance
Ronen, Y. 446 234, 295–7
Rose-Ackermann, S. 76 see also corporate social
Rosett, A. 99, 104, 107, 110 responsibility; soft law
Royal Ahold 233 separation of powers 169, 170, 246, 447
Rubin, E.L. 20 Serbia 112, 117
Rubin, S.J. 305 Shapiro, M. 33
Rubino-Samartano, M. 116, 118 Shapo, M.S. 437
Ruggie, J.G. 267, 311, 314, 317, 326, shareholders 223, 249, 290–94
327 agent–principal problem 62, 272,
Rühl, G. 67, 87, 88 279, 283
rule of law 142–3, 241–2, 247 challenges to corporate system 231,
Russian Federation 112, 121, 125, 233 232–4, 236, 237, 240, 243,
corporate law 218–19, 222, 235 249, 283
Rwanda 117 corporate law theory 280, 281–2
contract theory 224, 225, 272–4,
Sabel, C.F. 37 278, 279, 283, 290–92,
Salmon, P. 73 294, 295
corporate social responsibility 275 code on corporate governance

rights 215–16, 234, 236, 237, 240, 295–6, 297
243, 249, 282–3 eviction 458
stakeholder and shareholder models judicial activism 443
212, 223–30 multinational corporations (MNCs)
Shell 229 268, 285
Singapore 112 state commercial activity 188, 192,
Sinn, H.-W. 84 195, 197, 198, 201–2
Slaughter, A.-M. 18 transition from apartheid to
slavery 446, 450 democracy 211
Slovakia 117 Truth and Reconciliation
Slovenia 117 Commission 246–9, 250
Slovic, P. 398 South African Breweries 285
small and medium-sized enterprises 78 South America 248
Smith, J. 449 Southeast Asia 389
Smits, J.M. 23, 37, 47, 233, 262, 290, sovereign wealth funds 233–4
295, 300, 301, 302, 303, 368, 375, Soviet Union, former 291
376, 415, 458 Spain 112, 121, 213, 232, 360, 450
Social Accountability or SA 8000 325 specific performance 193
social contract 23 Speth, J.G. 383
social scientists 417 Spier, J. 443, 446, 449
social security 89 Springer, J.D. 294
Société Générale 232 Srakin, J. 247
soft law 128, 459 Sri Lanka 112, 248
corporations 241–2, 302, 305, 327, stakeholders see under corporate law
328, 330 standardization organizations 18, 325
codes 18, 234, 238, 295–7, state commercial activity and
317–21, 324–5 administrative law 183–6, 203–4
CSR see corporate social actions of the state 186–7
responsibility applicable norms 187–93
International Chamber of Commerce enforcement of norms 193–200
(ICC) private and public in law and social
Incoterms 113, 120–21, 122 practice 201–3
Uniform Customs and Practice for statutory interpretation 162
Documentary Credits travaux préparatoires 147, 164–5
(UCP) 113, 120, 122 see also judicial activism under
model laws or codes for adoption by judges; transnational
countries 111–12, 116, 117, contextualization:
118–19, 200 constitutional interpretation
UNIDROIT: Principles of Steins Bisschop, B.T.M. 213, 232, 244,
International Commercial 245
Contracts 113, 124, 125 Stephan, P.B. 99, 110, 302
Solomon, R.C. 276 Stewart, R.B. 388
Sørensen, G. 183–4, 185, 187 Stiglitz, J.E. 184, 187, 255, 258, 259,
South Africa 103, 112, 117, 126, 127, 260, 261, 262, 263, 264, 266, 267,
368 268, 269, 270, 285, 286, 288, 298
constitutional law see transnational Stone, J. 434
contextualization: Storme, M. 344, 349, 350, 355–6
constitutional interpretation Storskrubb, E. 343, 344, 350, 353, 355,
corporate law 291, 293, 297 358
Index 485
Stout, L.A. 226 environmental impact assessment 404

Strange, S. 329 Netherlands 393–4, 403
Stürner, R. 343, 347, 357, 358, 359, 360 transnational contextualization:
Suchman, M. 41 constitutional interpretation
Sun, J.M. 74 145–7, 150–51, 178–9
sustainability reporting 275, 297 foreign law and constitutional
Sutton, D. 200 comparativism 147, 175–9
Sweden 427 believers and disbelievers 168–73
Switzerland 288 value and advantages of 173–5
gateways: s. 39 and Makwanyane
Tamanaha, B.Z. 26 guidelines 147–50
Tanzania 117 international law 165–8, 178–9
tariffs: classification of goods 126–7 AZAPO case 156–8, 160, 166,
Tarrow, S. 24 167, 178
Taruffo, Michele 357 binding and non-binding 154–5
Tavis, L.A. 256, 257, 258, 259, 260, 261, framework dictum 149, 155–60
263, 264, 265, 269, 270, 276, 277, Grootboom case 158–60, 167
284, 290, 292, 294, 295, 298, 299, mistakes of law 156, 166
303, 304, 305, 318, 319, 322, 325, other judgments 160–62
326 presumption, underused 162–4,
taxation 85, 285, 287, 389 166
Taylor, A.M. 312 South Africa’s ‘New
technical standards 18 Constitution’, globalization
Temmink, H. 397 and 151–4
Testy, K.Y. 262, 267, 268, 271, 272, 273, travaux préparatoires 147, 164–5
274, 275, 276, 277, 278, 279, 282 transparency 20, 21, 51, 122, 127,
Teubner, G. 17, 18, 193, 198, 295, 303 323–4, 416
Thailand 112, 117 accountability as a virtue 47–8
Thomassen, J. 43 conventions on international trade
Tiebout, C. 23, 59–61, 81, 300, 389 law 110
time limits 441–2 corporate law 218, 220, 226, 235,
tort 26, 408, 435 241, 268, 304
administrative law and 139, 140 environmental law 407, 409, 410,
economic analysis 79 411, 412, 416
externalities, interstate 82–3 multinational corporations 268, 304
heterogeneity of preferences 89 regulators 78
regulatory competition 84, 85 state commercial activity 191, 195,
multinational corporations (MNCs) 196
287, 379 transnational rules 22, 25–7
product liability 82–3, 85 transport law 115–16
time limits 441–2 travaux préparatoires 147, 164–5
US Alien Tort Claims Act 1789 287, Trebilcock, M.J. 408
379 Tsuk, D. 271, 274, 276
wrongful birth and wrongful life 443 ‘tulipomania’ 231
toy trade 319, 320 tuna 397, 405
Toyota 257, 262 Tunisia 112
transboundary pollution 63, 64, 65, 384, Turkey 112
387–8, 390, 393–4, 400–401, 410, Turpin, C. 188, 190, 201
411, 414, 459 Tushnet, M. 172, 177, 428
consensual solutions 404–5, 413 Twining, W. 258, 297, 303
Udehn, L. 263 capital market debt 240

Uganda 112, 117 civil procedure 343, 358, 360
Ukraine 112 American Law Institute 350, 357,
Ulen, T.S. 272 358
uncertainty, scientific 417 competition law 61
UNCITRAL (UN Commission on constitutional comparativism 169–70,
International Trade Law) 102, 172
114–19 corporate law 217, 228–9, 235,
CISG 25, 102–6, 107, 108–10, 119, 290–94, 297, 328
128 competition of norms 301
Model Laws 116, 117, 118–19 contract theory 272, 273–4, 278,
Electronic Commerce 112 294
International Commercial Delaware 85, 294
Arbitration 111, 116, 118, multinational corporations 267,
200 288, 321, 325
UNIDROIT (International Institute for corruption abroad 286–7
the Unification of Private Law) credit crunch 230–31, 237
101–2, 114, 123–5, 350, 357, 358 crime in New York 245
Principles of International environment 76–7, 391, 392, 395,
Commercial Contracts 113, 404, 413
124, 125 climate change 427, 446
United Arab Emirates 117 Commerce Clause 416
United Kingdom 61, 102, 103, 112, 117, emissions trading 390
189, 197, 198, 450 free trade 396, 397
adverse possession 372–3 marine oil pollution 408–9
Bank of Credit and Commerce nuclear liability 408–9
International 233 globalization 258
civil procedure in England and Wales judicial activism 444
343–4, 346, 360, 361 pre-trial discovery 343
corporate law 217, 226–8, 229, 232, president and Congress 410
288, 290–94, 297 Sarbanes-Oxley Act 234–5, 278
eviction 458 sovereign wealth funds 233–4
Human Rights Act 435, 458 Uniform Commercial Code (UCC)
United Nations 116, 117, 120, 152, 298, 25, 101, 122
368 unjust enrichment 25
Committee against Torture 441 Uzbekistan 117
Convention against Corruption 287
environment 394, 401, 406, 407 Van Alstine, M.P. 104
multinational corporations 305–6 Van Caenegem, R.C. 15, 343, 347
Global Compact 310–12, 315, Van Calster, G. 397, 406
316, 318 Van Dam, C. 379, 414
Norms on human rights 306–10, Van den Berg, P.A.J. 24
313–14, 327 Van den Bergh, R. 61, 63, 64, 80, 82, 84,
Special Representative 312–17, 89, 90, 393, 414
327 Van den Borre, T. 409
UNCTAD 306 Van den Bossche, P. 396
United States 97, 103, 109, 112, 117, Van den Brink, D. 240
119, 121, 211 Van den Brink, G. 429
accounting standards 296 Van den Linde, C. 384
Alien Tort Claims Act 1789 287, 379 Van der Linde, M. 399
Index 487
Van der Merwe, S. 195 water services 188

Van der Walt, A.J. 174, 175, 176, 191, Wauters, K. 141
368, 373 Weatherill, S. 74, 85, 88
Van der Westhuizen, J. 184 Weien, G.C. 244
Van Dijk, P. 351 Weigand, F.B. 200
Van Dillen, J.G. 213 Weiler, J. 42, 74
Van Gerven, W. 46 Weinrib, E.J. 26
Van Ierland, E.C. 388 Weissbrodt, D.S. 265, 266, 307, 308,
Van Kersbergen, K. 33 309, 312, 314, 317, 326
Van Rhee, C.H. 343, 344, 345, 346, 347, welfare provision 186–7
459 Wellink, N. 238
Van Schendelen, M.P.C.M. 47 Wessel, R. 410
Van Zelst, B. 16 Westbrook, D.A. 258, 261
Vanberg, V. 73 Whincop, M.J. 273, 276
Vandenhole, W. 444 Whytock, C.H.R.A. 412
Vaquer, A. 15 Wiener, J. 308
Venezuela 112 Wiener, J.B. 398
Venter, F. 171, 176 Wijffels, A. 346
Verbeke, A. 16, 45 Wilde, R. 51
Verheij, A. 408 Will, M.R. 104
Verheyen, R. 449 Williams, C.A. 274, 275, 291, 292, 293,
Verougstraete, A. 430 295, 304
Verwey, M. 413 Williams, O.F. 311
vicarious liability 443 Williams, R.C. 126
Vienna Convention on the Law of Williamson, O.E. 272, 273
Treaties (1969) 108, 154, 165 Winn, J.K. 119
Vietnam 117 Winter, G. 384, 393
Viney, G. 442 Wirth, D.A. 383, 390, 396, 397, 398,
Vivendi Universal 233 404, 410
Vogel, D. 384, 389, 391 witnesses: Storme Report 357
Vogenauer, S. 348 Wolf, R.C. 116
Volmer, F.G. 214 Wool, J. 99
voluntary law 18 Woolf, H. 197
see also soft law Woolf, L. 343, 344
Von Bar, C. 15, 38 World Bank 17, 184, 217, 298–9, 304–5,
Von Wilmowsky, 398 349
Vos, E. 398 World Customs Organization (WCO)
114, 125–7
Wade, C. 190 World Trade Organization (WTO) 17,
Wagner, G. 84, 88, 90 114, 221, 298–9, 404
Wal-Mart 322 economic criteria: optimal regulatory
Wallace, C.D. 299, 305, 313 level 57, 58, 81, 93
Wang, H. 408, 409 interstate externalities 64, 65
Wang, J.Y. 222 regulatory competition 70–71, 74
Wang, P. 221 trade–environment dispute 396, 397,
war 259, 269 399, 416
criminals 246 Wouters, J. 65
warranties, bank 87 wrongful birth and wrongful life 443
Warsaw Convention (1929) 110
waste disposal 389, 397, 399 Zambia 112, 117
Zamoyski, Adam 450 Zimmermann, R. 196

Zander, J. 398 Zondorak, V.A. 323
Zegveld, L. 379 Zwart, S.G. 110
Zimbabwe 112 Zweigert, K. 38, 99, 101
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Globalization and Multi-Level Governance of Environmental Harm

Article · June 2011

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André van der Walt

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Edward Elgar Publishing, Inc.

Library of Congress Control Number: 2009940743

ISBN 978 1 84844 760 8

Typeset by Cambrian Typesetters, Camberley, Surrey

Introduction and editorial preface 1

PART I GLOBALIZATION, DEMOCRACY AND ACCOUNTABILITY

1 Democracy and (European) private law: a functional approach 15

2 Public accountability of transnational rule making:

PART II HARMONIZATION VERSUS DECENTRALIZATION

3 Private law in a globalizing world: economic criteria for

8 Lessons for globalization of private law 80

4 Globalization and harmonization of international trade law 97

PART III PUBLIC LAW

5 The relation between private law and administrative law

3 Administrative law and globalization 141

6 Beyond parochialism? Transnational contextualization in

7 Globalization, state commercial activity and the

PART IV CORPORATE GOVERNANCE

8 Globalization: selected developments in corporate law 211

6 The limitations of legal remedies in the resolution of crises 236

9 Globalization and corporate law 255

PART V PROCEDURAL ISSUES

10 Civil procedure in a globalizing world 343

PART VI HUMAN RIGHTS AND THE ENVIRONMENT

11 Fundamental rights in private law: anchors or goals in a

12 Globalization and multi-level governance of environmental

6 Contribution of environmental law to the globalization

13 The rule of law and judicial activism: obstacles for shaping

PART VII COMPARATIVE CONCLUSIONS

14 Comparative and concluding remarks 457

4 Private–public law 461

CIETAC China International Economic and Trade Arbitration

GAP Gents Afrika Platform

MJ Maastricht Journal of European and Comparative Law

1 PROBLEM DEFINITION AND REASONS FOR THIS

1.1 Lawmaking in a Globalized World

It is not difficult to point to a variety of developments that have taken place

1.2 Convergence, Divergence, Accountability and Legitimacy

1.3 Who Sets the Agenda?

Increasing political globalization has important consequences and leads to

2 HISTORY AND ORIGINS OF THIS BOOK

publication, although a valuable contribution to the setting of the research

3.1 Legal Multidisciplinarity

3.2 Comparative Approach

Given the nature of this book, which originated as a cooperation between

• The effect of globalization on private law is central to the whole project.

1. Who is in charge of agenda setting? This relates to the important consti-

instance notice an increasing enthusiasm, at least in Europe, for harmo-

6 STRUCTURE OF THIS BOOK

summaries and overviews of the presentations and discussion, which provided

Globalization, democracy and accountability