Lex Mercatoria

• Lex mercatoria is the Latin expression for a body of trading principles

used by merchants throughout Europe in the medieval. Literally, it
means “merchant law”.

• It evolved as a system of custom and practice, which was enforced

through a system of merchant courts along the main trade routes. It
functioned as the international law of commerce.

• It emphasized contractual freedom, alienability of property, while

shunning legal technicalities and deciding cases ex aequo et bono.
• Unfortunately, there is no special definition for Lex Mercatoria which can accommodates all opinions and ideas in one
definition. The following definitions may help to give a general idea about Lex Mercatoria.

A set of general principles, and customary rules spontaneously referred to or

elaborated in the framework of international trade, without reference to a
particular national system of laws.

A regime for international trade, spontaneously and progressively produced

by the societas mercatorum

A single autonomous body of law created by the international business

community.
 The customs of the business Community may combine all general
principles of law to create a system of commercial self-determination .

 The phenomenon of uniform rules serving uniform needs of

international business and economic co-operation.

• As in the listed definitions it is clear to realize that every scholar have

his view in his definition which is different from other scholars. Hence,
it is agreed that there is no special definition for Lex Mercatoria.
Historical background of Lex Mercatoria
• The notion of lex mercatoria is not new. Some say that it has its precursor in
the Roman jus gentium, the body of law that regulated the economic
relations between foreigners and Roman citizens.
• Others go further back in time and trace the origins of the lex mercatoria in
the Ancient Egypt or in the Greek and Phoenician sea trade of the Old Ages.
• In any case, it is in the Law Merchant of the Middle Ages where the historical
roots of the lex mercatoria can truly be found.
• The flourishing of international economic relations in Western Europe at the
beginning of the 11th century caused the formation of the ‘Law Merchant’, a
cosmopolitan mercantile law based upon customs and applied to cross-
border disputes by the market tribunals of the various European trade
centers.
• This law resulted from the effort of the medieval trade community to
overcome the obsolete rules of feudal and Roman law which could not
respond to the needs of the new international commerce.

• Merchants created a superior law, which constituted a solid legal basis

for the great expansion of commerce in the Middle Ages.
• For almost 800 years, uniform rules of law, those of the law merchant
were applied throughout Western Europe among traders.
• Many of the laws of the lex mercatoria were established to evade
inconvenient rules of common law.
• An example in this regard is that a man could not give what he himself
has not. In other words, a man who has no title to goods cannot give
title.
• Hence, when a person buys an object, for him to be sure that he is
the rightful owner of the title, he had to enquire into the title of that
thing back to its remote possessors, to make sure that no one in the
chain of title had obtained it by fraud.
• However, as per the laws of lex mercatoria, commercial business
“cannot be carried on if we have to enquire into the title of everybody
who comes to us with the documents of title.”

• The Law merchant established certain documents or choses in action

which were transferable by delivery and endorsement or by delivery so
that the holder could sue in his own name and which passed good title
to the transferee who took them in good faith, notwithstanding the
transferor had no title.
• They could be sued on by their holder in his own name and were not
affected by previous lack of title. This instrument was the original
negotiable instrument.
• Hence, it can be rightly said that the law of negotiable instruments is
founded mostly upon the laws of lex mercatoria.
• With the rise of nationalism and the codification period of the 19th
century the ‘law merchant’ was incorporated into the municipal laws of
each country.
• These laws blended with the national laws and thus lost its uniform
character.
• When the states took over International trade, the new mercantile laws
were applied to regulate international relations.
• However, the development of international trade after World War II
showed some of the defects of the traditional regulation of
international contracts.
• The complexity of the private international law and obsolete
character of domestic laws did not rectify these flaws.
• The supremacy of national law in international economic relations
began to be questioned.
• It was then the present traders started adopting alternative solutions
to avoid the application of national law to their transactions.
• By means of standard clauses, self-regulatory contracts, trade usages
and by recourse to international commercial arbitration, traders were
creating their own regulatory framework independently from national
law, which can be called the new lex mercatoria.
Development of Lex Mercatoria
• Traders in medieval Europe wanted to expand international trade, but
they could not easily do this as localized legal systems acted as
obstacles in their way. 
•  Therefore in order to bet around these obstacles, an international
system of commercial law began to develop and evolve. This system
has since then been referred to as the Lex Mercatoria. 
• Lex Mercatoria can be aptly referred at as “the private international
law of the Middle ages.” 
• Commercial law thus emerged during this period as an integrated
progressing body of law.
• The law virtually regulated every aspect of commercial dealings in
entire Europe and would sometimes be applied even outside Europe
after the eleventh century. 
• Lex Mercatoria was unique in that as opposed to many modern legal
systems, the system governed without involving the coercive power of the
state.

• Hence, it can be said that the Lex Mercatoria was “voluntarily produced,
voluntarily adjudicated and voluntarily enforced.”  

• Additionally, the legitimacy of the law merchant was founded on a complex

network of voluntary and reciprocal relationships supported by reputations
• Traders formed their own courts in every trading center, trade fair or
market to arbitrate disputes in accordance with their own evolving
laws.
• This was a participatory process as judges were always selected from
the relevant merchant community.

• The system can be said to have been effective because the judges
were experts in commercial issues and also has the respect of the
community at large.
Nature of Lex Mercatoria
• The lex mercatoria can be defined as a body of principles which is
different in its origin and content, created by traders to serve the
requisites of international trade.
• There are many concepts of lex mercatoria as it has been discussed by
many thinkers dealing with the subject.
• When relating lex mercatoria with national law, there are 2 views that
are prevalent, i.e.,
1. the autonomist
2. positivist concepts.

• As per the autonomous concept, lex mercatoria is having an

autonomous character, independent from any national system of law.
• Hence, it can be rightly said that it is a set of general principles, and
customary rules spontaneously referred to or elaborated in the
framework of international trade, without reference to any
particular national system of law.
• The positivist concept regards lex mercatoria as a body of rules,
transnational in their origin, but which exists by virtue of
state laws, which give them effect. For the supporters of this view, lex
mercatoria is ultimately founded on national law.
• With regard to its substantive quality, there are three main concepts
of lex mercatoria.
The first one views lex mercatoria as an autonomous legal order.
The second one conceives it as a body of rules capable of operating
as an alternative to an otherwise applicable national law.
 The last concept characterizes lex mercatoria as a conglomerate of
usages and expectations in international trade, which may
complement the otherwise applicable law.
• The concept of lex mercatoria is usually linked with other concepts,
which may be similar or alternative. Some thinkers refer to
transnational law as a synonym of the lex mercatoria.
• Transnational law, however, is a very wide subject which is composed
of all law regulating transboundaries actions or events, including
private and public international law and other rules not fitting into
those categories.
• The lex mercatoria is a much narrower concept which is used to
indicate that part of transnational law which is unwritten.
 Sources of Lex Mercatoria
• Most of protagonists of Lex Mercatoria are not completely agreed with the
sources of Lex Mercatoria. However, there are some sources are emerge which
they are consider below.
Public international law
Uniform laws
The General principles of law
The rules of international law organizations
Customs and usages
Standard form contracts
Reporting of arbitral awards 
To this list one must evidently add the public policy of the country in which
enforcement of the award is likely to be requested 
The Theory of Lex mercatoria
• It could be said that the theory of lex mercatoria is highly
controversial. Some authors even deny its existence.
• Those who are against the concept of lex mercatoria are of the view
that it lacks generality and predictability and that it is vague and
incomplete.
• According to them, lex mercatoria lacks generality due to the existing
diversity of standard contracts and trade usages.
• Therefore, each standard contract and trade usages reflects the
sense of justice of the different trades or professions, being too
diverse to constitute a homogeneous legal source.
• Similarly, the solutions reached by arbitrators in the application and
possibly, in the creation of lex mercatoria only concern the current
dispute, not being extrapolable to the generality of international
trade.
• Few awards are published, making the outcome of future disputes
difficult to predict.
• Hence, businessmen and arbitrators are not able to refer precedents
for guidance, and arbitrators cannot be expected to apply customary
law principles consistently.
• The lex mercatoria is furthermore accused of being vague and
incomplete. Claims have been made that there are very few general
principles of trade law that can be universally recognized; those very
few are so basic and fundamental as to be useless.
• Even the proponents of the concept of lex mercatoria have agreed
that it is incomplete.
• Lex mercatoria does not provide an answer for legal issues such as
validity, capacity, or contract form.

• Anyway, the major obstacle to the theory of the lex mercatoria is its
lack of binding force.

• It falls within the traditional definition of law.

• It does not result from the command of the sovereign as it has not
been enacted by a parliament or endorsed in an international
convention.
• However, many have argued from the point of legal pluralism that
the lex mercatoria belongs to the domain of law.
• The concept of law largely departs from the notion of sanction and
social organizations and is capable of producing its own rules.
• Some have objected to this position claiming that legal rules have an
obligatory nature.
• The rules enacted by the legislator have an intrinsic binding force,
whereas customary rules require opinio iuris, the feeling to be bound
This does not happen in the case of the purported rules of the lex
mercatoria.
• Trade usages are a product of party autonomy; they are contractual
. practices generally observed and used as a proof of the will of the parties.

• The latter may therefore exclude their application by an express

stipulation of the contract

• Those in support of lex mercatoria have counter-attacked such a

statement by noting that societas mercatorium has mechanisms of
coercion to obtain compliance with its rules such as black lists, damage to
commercial reputation or withdrawal from trade associations’ members’
rights.
• This result in the merchants actually feeling bound to observe the rules of
the lex mercatoria.
• Finally, it has to be noted that even if some of the elements may be
described as legal rules, the lex mercatoria does not have the quality
of a legal system.  
• The societas mercatorium cannot present its convictions and notions
in a systematic order, as there is not a single international community
of merchants but a plurality instead.

• At the most, there are only principia mercatoria.

How has the Roman Lex Mercatoria evolved to play a
role in modern International Trade Codification?

• Since 1960s there have been systematically countless discussions

regarding the very nature and the function of the body of
transnational commercial rules called Lex Mercatoria.
• The discussions and its subjects have become even more
controversial over the years.
• Whereas some authors completely denied Lex Mercatoriaexistence,
others noted its advantages and key role and importance in many
fundamental points and areas.
• In spite of the numerous academic contributions, the advantages
of Lex Mercatoria still remain unknown to the majority of the
business and legal communities today.

Key developments in the 19th and 20th centuries

• With the raise of nationalism and the codification period of the 19th
century the law merchant was incorporated into the municipal laws of
each country.

• As states took control over international trade, the new national

mercantile laws regulated economic relations and cross-border
disputes were solved by referring to “private international law(s)”.
• The French legal system provides an example of direct recognition
and incorporation of Lex Mercatoria principles as part of the
codified framework of its own domestic trade law.
• And it was a principle of French law that agreements entered into in
good faith should be respected by the parties and enforced in law.

• German commercial code also incorporated the general principles of

the Lex Mercatoria, albeit with a distinct indigenous character.

• By the end of the century Lex Mercatoria started to have true global

application, across and beyond the differences artificially imposed in
national legal systems and both in civil law and common law
jurisdictions.
• Moreover, the development of international trade after the Second
World War showed some of the flaws of the traditional regulation of
international contracts and commerce.
• The complexity of the private international law rules did not satisfy
the simplicity, fast pace and certainty required by the business
community.
• As a reaction to those restrictions and regulations, numerous
conventions and model laws have been adopted in the fields of
arbitration, factoring, leasing, letters of credit or sales, etc.
• These documents were drafted by various international organizations
acting on a true global commerce scale.
Codification of Law Mercatoria and Modern
International Unifying Bodies