Mythos of the Lex Mercatoria

This article has been written by Gaurav Kumar^[1] and Co- Authored Madhav Chaturvedi^[2]

***This article has been selected for LegalOnus Law Journal (LLJ) Volume 1, Issue 7, 2025

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Introduction

The creation of Lex Mercatoria will be explored, followed by a discussion on its evolution and a critical examination of its significance in the development of Commercial Law. Furthermore, an in-depth look into the existence of a contemporary version of Lex Mercatoria will be conducted. Lastly, the relationship between this term and Global Arbitration will be scrutinised, culminating in a summary.

Definition and Explanation

“Lex mercatoria, often referred to as the body of rules governing international commerce, has been shaped by customs in the field of commerce and validated by national courts. This concept was cited in the deliberations of the International Court of Arbitration in Paris during the resolution of case number 9246 on March 8, 1996. The term lex mercatoria originates from Latin and translates to “merchant law.” It was utilised by European merchants during mediaeval times to denote the set of laws governing commercial activities^[3].”

History and Evolution

“The origins of lex mercatoria can be traced back to ancient times, particularly in regions such as Greece, Egypt, Phoenicia, and notably Rome, where a distinct legal system known as ius gentium was established. This legal framework was developed due to the expansion of the Roman Empire, which necessitated new regulations to address the evolving complexities of trade relationships. Initially applied to interactions between foreigners and Roman citizens, ius gentium eventually extended to encompass legal matters among Roman citizens before gradually fading into obscurity as Rome underwent significant societal changes.

Despite its decline in practice, ius gentium continued to be recognized as part of the legal structure alongside ius civile.^[4]”

“Ius gentium was characterised by its adaptable nature, accommodating various business customs and regulations. Following the collapse of the Roman Empire, individual states began formulating their legal systems based on the principle of territoriality, asserting their sovereignty over matters within their borders. This shift led to the proliferation of diverse legal frameworks, with each state enforcing its own set of laws. The legal principles of the Roman Empire, combined with commercial practices, were later adopted by the Byzantine Empire and certain Arabic nations.^[5]”

“During the mediaeval period, lex mercatoria underwent significant transformations influenced by various factors, including the waning influence of the Arabic Empire in the Mediterranean, the rise of port cities, the impact of crusades, the resurgence of trade in Europe, and the migration of merchants who brought their trade practices and rights. Additionally, the emergence of a new social class, the middle class, played a crucial role in shaping the development of commercial law. The feudal legal system of the mediaeval era was ill-equipped to address the complexities of international trade, leading to the need for a more specialised legal framework to govern commercial transactions.^[6]”

“During the 12th and 13th centuries, specialised courts were established in regions where markets were held in France, Italy, and England to address trade disputes and enforce lex mercatoria. These courts were presided over by esteemed individuals within the trading community to ensure that cases were adjudicated based on established customs and traditions, thereby applying lex mercatoria within a defined jurisdiction. The involvement of respected figures from the aforementioned countries underscored the legitimacy of the arbitration process.^[7]”

“In instances where breaches of law were identified, monetary penalties were imposed as a form of redress. Merchants typically opted to pay fines to safeguard their reputation, which held significant value during that era.

Failure to comply could cause the loss of business partners or, more severely, expulsion from the protective community. This emphasis on reputation management highlights the importance of upholding ethical standards in commercial dealings. Lex mercatoria represented a distinct legal framework that governed specific aspects of law, particularly trade relationships. Its scope differed from feudal or canonical law, which encompassed broader legal domains.^[8]”

“Recent studies conducted by legal historians cast doubt on the alleged existence of a distinct and independent legal system known as the mediaeval lex mercatoria, separate from the authority of the state. These studies challenge the notion that the merchants participating in the fairs of St. Ives, who are often credited with creating the law merchant, operated under a uniform set of rules. Instead, they were primarily governed by local official laws. Similarly, Dutch and Belgian merchants during the Middle Ages and early modern times relied on a combination of private and public legal institutions, rather than exclusively resorting to arbitration or quasi-private tribunals.^[9]”

“Multiple analyses have made it highly unlikely to argue for the historical existence of an autonomous non-state lex mercatoria. Even the historical sources that mention the lex mercatoria present ambiguity regarding its relationship with the state. For example, the Little Red Book of Bristol, one of the earliest texts on the lex mercatoria (circa 1280), suggests that merchant law originates from the market but also recognizes the common law as the foundation of mercantile law. Similarly, Gerard Malynes, the author of a renowned English book on lex mercatoria, presents conflicting views. While he emphasises that the lex mercatoria is not established by any sovereign, he also states that it is a customary law approved by the authority of all kingdoms and commonwealths.^{[10] [11]}”

“Furthermore, Stracca’s De Mercatura, often regarded as an exposition of the lex mercatoria, primarily focuses on ius commune (common law) and applies a combination of official laws and the received ratio scripta of Roman law to commerce.

The authors of these texts did not perceive a contradiction in combining market law and state law. The lex mercatoria, similar to the ius gentium (law of nations) and general principles of law, was considered the law applicable to all states and, therefore, not tied to any specific state.^[12]”

“Nevertheless, the absence of a separate and independent lex mercatoria should not be misconstrued. Although the term and concept were widely recognized, it remained intertwined with official legal systems. Lex mercatoria comprised a fusion of official legislations, established commercial practices and institutions, and a combination of official courts and quasi-private local tribunals. It encompassed both public privileges and private practices, incorporating public statutes and private customs that pertained to a specific form of supra-local trade and the merchants involved in it. Essentially, lex mercatoria represented a confluence of state and non-state regulations and procedures, unified by its emphasis on merchants as the central actors.^[13]”

The ‘New’ Lex Mercatoria

“The New Lex Mercatoria is a transnational body of legal principles and rules that has emerged from the activities of the international business community and international formulating agencies in the field of international trade and finance. Berthold Goldman and Clive Schmitthoff had differing views on the concept, with Goldman seeing it as a third, autonomous legal system alongside domestic laws and public international law, while Schmitthoff believed it existed within the principle of party autonomy as a principle of domestic law.^[14]”

“Despite their differing perspectives, both Goldman and Schmitthoff acknowledged the gradual emergence of a transnational body of legal principles and rules from the activities of the international business community and harmonisation efforts.

Goldman’s view influenced his academic pupils in various areas of international business law, while Schmitthoff played a crucial role in the conceptualization of the United Nations Commission on International Trade Law (UNCITRAL).^[15]”

“Some authors see the New Lex Mercatoria as a collection of rules and principles derived from party autonomy in contract law, while others view it as the sum of refined trade usages. Proponents of the more radical view, in line with Goldman’s perspective, consider it as an independent, supranational legal system that supersedes even mandatory provisions of domestic law.^[16]”

“Despite the disagreements on its legal nature, proponents of the New Lex Mercatoria agree that it is a “living law” or “law in action” that evolves rapidly. They acknowledge the challenges in codifying it due to its dynamic nature, influenced by business logic, market forces, practical needs, established practices, and international dealings.^[17]”

“The New Lex Mercatoria, or transnational commercial law, is closely intertwined with the phenomenon of globalisation. This connection underscores the various challenges brought about by globalisation, including heightened economic interdependence and the inclination of international actors to evade domestic legal frameworks. Consequently, there has been a discernible shift towards the establishment of transnational legal principles and regulations. Over time, the conventional demarcations between national and international law, public and private law, and politics and law have gradually eroded.^[18]”

“The role played by international arbitral tribunals in shaping transnational commercial law is pivotal. These tribunals are often regarded as “private courts,” and their decisions carry substantial weight in the realm of international commerce. They frequently adopt a comparative approach and refer to transnational rules or general principles of law^[19]”.

“Moreover, the concept of legal pluralism may be a theoretical framework that supports the development of transnational commercial law. Legal pluralism recognizes that law is not solely determined by governments or states; it acknowledges the significance of private rulemaking within the international business community.

Additionally, there exist industry-specific subsystems within transnational law, such as maritime trade, construction, oil and gas, cyberspace, and international banking and finance. These subsystems are purported to possess their own distinct set of transnational legal rules.^[20]”

Lex Mercatoria and Arbitration

“The use of lex mercatoria in international trade disputes is a topic of debate. Proponents argue that lex mercatoria can provide a set of internationally accepted principles to govern such transactions, while opponents claim that it is not a true body of law. The absence of an international legislature and commercial court contributes to the scepticism surrounding lex mercatoria.^[21]”

“One of the main advantages of applying lex mercatoria is that it avoids the complications of selecting laws through conflict of laws rules. It allows for the application of a body of law specifically developed for international transactions, eliminating the need to rely solely on domestic laws. Additionally, lex mercatoria can provide a more neutral ground for dispute resolution, as neither party has an inherent advantage based on their national law. The principle of good faith is a guiding rule in lex mercatoria, ensuring fairness and preventing arbitrary outcomes.^[22]”

“Arbitration is often the preferred method for resolving international trade disputes, and the parties have the autonomy to choose the applicable law. They can explicitly select lex mercatoria or refer to general principles of law or international trade usages, effectively authorising the application of lex mercatoria by the arbitral tribunal. In cases where no choice of law is indicated, the tribunal may apply lex mercatoria as a subsidiary law if it deems it appropriate^[23].”

“However, opponents argue that lex mercatoria should only be applied when explicitly chosen by the parties. They suggest that the absence of an explicit choice does not imply an implicit selection of lex mercatoria. They propose that in cases where no law is chosen, the tribunal should determine an applicable national law consistent with conflict of laws rules. Critics also emphasise the importance of party autonomy and argue against imposing lex mercatoria when the parties have explicitly chosen a national law^[24].”

“An important benefit of employing lex mercatoria is its ability to circumvent the complexities associated with selecting laws through conflict of laws rules. It enables the application of a legal framework specifically tailored for international transactions, eliminating the sole reliance on domestic laws. Furthermore, lex mercatoria can establish a more impartial platform for resolving disputes, as neither party holds an inherent advantage based on their national legislation. The principle of good faith serves as a guiding principle in lex mercatoria, ensuring equity and preventing arbitrary outcomes.”^[25]

“The distinction between lex mercatoria and amiable compositeur is significant. Lex mercatoria operates within mandatory rules, while amiable compositeur allows arbitrators to base decisions on equitable principles without being restricted by specific laws. Some arbitral awards have broadly interpreted amiable compositeur clauses to include lex mercatoria, giving arbitrators the authority to apply it effectively^[26].”

“The influence of lex mercatoria can reach cases involving the application of national laws. Arbitrators may consider international trade usages and general legal principles to interpret contracts and find solutions. National courts may also apply lex mercatoria based on their conflict of law rules, although the extent of its application varies across countries. While national courts typically respect parties’ choice of lex mercatoria, they may also draw inspiration from it in cases where it was not explicitly chosen to fill gaps in national law or avoid provisions unsuitable for international trade.^[27]”

Summary

In conclusion, the use of lex mercatoria in disputes remains a contentious issue. Ideally, it should be applied when parties explicitly choose it, and its application by national courts may differ. While lex mercatoria can offer advantages such as a neutral and globally accepted framework for dispute resolution, its status as a true body of law is still a matter of debate.

Bibliography

1. Martiskova M, ‘Home’ (Purity III, 21 February 2018) <https://www.lawyr.it/index.php/articles/reflections/1193-lex-mercatoria>
2. (The true Lex Mercatoria: Law beyond the State) <https://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=1359&context=ijgls>
3. Berger KP, ‘History & Modern Evolution of Transnational Commercial Law’ (translex, 22 June 2023) <https://www.trans-lex.org/the-lex-mercatoria-and-the-translex-principles_ID8#I.2>
4. Ltd AA, ‘Theory of the Lex Mercatoria’ (Law Teacher, 6 November 2023)<https://www.lawteacher.net/free-law-essays/commercial-law/the-theory-of-the-lex-mercatoria-commercial-law-essay.php>
5. Stephen E. Sachs, From St. Ives to Cyberspace: The Modern Distortion of the Mediaeval “Law Merchant,” 21 AM. U. INT’L L. REv. 685, 687-95 (2006)
6. Oscar Gelderblom, The Resolution of Commercial Conflicts in Bruges, Antwerp, and Amsterdam, 1250-1650, at 36 (Econ. and Soc’y of the Low Countries, Working Paper No. 2005-2, 2005), available at http://www.lowcountries.nl/workingpapers.html.
7. GERARD MALYNES, CONSUETUDO VEL LEX MERCATORIA, OR THE ANCIENT LAW-MERCHANT, at Foreword (London 1622).
8. Charles Donahue, Jr., Benvenuto Stracca’s De Mercatura: Was There a Lex Mercatoria in Sixteenth-Century Italy?, in FROM LEX MERCATORIA TO COMMERCIAL LAW 69, 74-78 (Vito Piergiovanni ed., 2005).
9. S.A. Gallacher, Vox Populi, Vox Dei, 24 PHIL. Q. 12, 13 (1945)
10. Goldman, La Lex Mercatoria dans les Contrats et l’Arbitrage International: Réalités et Perspectives
11. Schmitthoff, The Law of International Trade, its Growth, Formulation and Operation, in: Schmitthoff (ed.)
12. UN Document A/6396, Report to the UN Secretary-General (“The Schmitthoff Study”), the document which was the ultimate support for the creation of UNCITRAL
13. General Principles of Law as Applied by International Courts and Tribunals, 1953 (reprinted 2006)
14. Fragistas, Arbitrage Étranger et Arbitrage International en Droit Privé, Rev.crit.dr.int.pr. 1960
15. Primary Coal Inc. v. Compañía Valenciana de Cementos Portland

[1] Assistant Professor, School of Law, IILM University, Greater Noida. Email – gaurav.kumar@iilm.edu

[2] LL.M. Student at IILM University, Greater Noida. Email – madhav.chaturvedi.gnllm25@iilm.edu

^[3] Martiskova M, ‘Home’ (Purity III, 21 February 2018) <https://www.lawyr.it/index.php/articles/reflections/1193-lex-mercatoria>

^[4] ibid

^[5] Martiskova M, ‘Home’ (Purity III, 21 February 2018) <https://www.lawyr.it/index.php/articles/reflections/1193-lex-mercatoria>

^[6] ibid

^[7] Martiskova M, ‘Home’ (Purity III, 21 February 2018) <https://www.lawyr.it/index.php/articles/reflections/1193-lex-mercatoria>

^[8] ibid

^[9] (The true Lex Mercatoria: Law beyond the State) <https://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=1359&context=ijgls>

^[10] Ibid 7

^[11]  GERARD MALYNES, CONSUETUDO VEL LEX MERCATORIA, OR THE ANCIENT LAW-MERCHANT, at Foreword (London 1622).

^[12] (The true Lex Mercatoria: Law beyond the State) <https://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=1359&context=ijgls>

^[13] (The true Lex Mercatoria: Law beyond the State) <https://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=1359&context=ijgls>

^[14] Berger KP, ‘History & Modern Evolution of Transnational Commercial Law’ (translex, 22 June 2023) <https://www.trans-lex.org/the-lex-mercatoria-and-the-translex-principles_ID8#I.2>

^[15] Ibid 16

^[16] Berger KP, ‘History & Modern Evolution of Transnational Commercial Law’ (translex, 22 June 2023) <https://www.trans-lex.org/the-lex-mercatoria-and-the-translex-principles_ID8#I.2>

^[17] Ibid 21

^[18] Berger KP, ‘History & Modern Evolution of Transnational Commercial Law’ (translex, 22 June 2023) <https://www.trans-lex.org/the-lex-mercatoria-and-the-translex-principles_ID8#I.2>

^[19] Ibid 25

^[20] Berger KP, ‘History & Modern Evolution of Transnational Commercial Law’ (translex, 22 June 2023) <https://www.trans-lex.org/the-lex-mercatoria-and-the-translex-principles_ID8#I.2>

^[21] Ltd AA, ‘Theory of the Lex Mercatoria’ (Law Teacher, 6 November 2023) <https://www.lawteacher.net/free-law-essays/commercial-law/the-theory-of-the-lex-mercatoria-commercial-law-essay.php>

^[22] ibid

^[23] Ltd AA, ‘Theory of the Lex Mercatoria’ (Law Teacher, 6 November 2023) <https://www.lawteacher.net/free-law-essays/commercial-law/the-theory-of-the-lex-mercatoria-commercial-law-essay.php>

^[24] ibid

^[25] Ltd AA, ‘Theory of the Lex Mercatoria’ (Law Teacher, 6 November 2023) <https://www.lawteacher.net/free-law-essays/commercial-law/the-theory-of-the-lex-mercatoria-commercial-law-essay.php>

^[26] ibid

^[27]Ltd AA, ‘Theory of the Lex Mercatoria’ (Law Teacher, 6 November 2023) <https://www.lawteacher.net/free-law-essays/commercial-law/the-theory-of-the-lex-mercatoria-commercial-law-essay.php>