Lex mercatoria (from the Latin for "merchant law"), often referred to as "the Law Merchant" in English, is the body of commercial law used by merchants throughout Europe during the medieval period. It evolved similar to English common law as a system of custom and best practice, which was enforced through a system of merchant courts along the main trade routes. It functioned as the international law of commerce. It emphasised contractual freedom and alienability of property, while shunning legal technicalities and deciding cases ex aequo et bono. A distinct feature was the reliance by merchants on a legal system developed and administered by them. States or local authorities seldom interfered, and did not interfere a lot in internal domestic trade. Under lex mercatoria trade flourished and states took in large amounts of taxation.
The lex mercatoria was originally a body of rules and principles laid down by merchants to regulate their dealings. It consisted of rules and customs common to merchants and traders in Europe, with some local variation. It originated from the need for quick and effective jurisdiction, administered by specialised courts. The guiding spirit of the merchant law was that it ought to derive from commercial practice, respond to the needs of the merchants, and be comprehensible and acceptable to the merchants who submitted to it. International commercial law today owes some of its fundamental principles to the lex mercatoria. This includes choice of arbitration institutions, procedures, applicable law and arbitrators, and the goal to reflect customs, usage and good practice among the parties.
Goods and services flowed freely during the medieval merchant law, thus generating more wealth for all involved. It is debated whether the law was uniform in nature, was spontaneous as a method of dispute resolution, or applied equally to everyone who subordinated to it. The lex mercatoria was also a means for local communities to protect their own markets. Local kings or lords extracted taxes and set trade restrictions.
The lex mercatoria was the product of customs and practices among traders, and could be enforced through the local courts. However, the merchants needed to solve their disputes rapidly, sometimes on the hour, with the least costs and by the most efficient means. Public courts did not provide this. A trial before the courts would delay their business, and that meant losing money. The lex mercatoria provided quick and effective justice. This was possible through informal proceedings, with liberal procedural rules. The lex mercatoria rendered proportionate judgements over the merchants’ disputes, in light of "fair price", good commerce, and equity.
Judges were chosen according to their commercial background and practical knowledge. Their reputation rested upon their perceived expertise in merchant trade and their fair-mindedness. Gradually, a professional judiciary developed through the merchant judges. Their skills and reputation would however still rely upon practical knowledge of merchant practice. These characteristics serve as important measures in the appointment of international commercial arbitrators today.
The lex mercatoria owed its origin to the fact that the civil law was not sufficiently responsive to the growing demands of commerce, as well as to the fact that trade in pre-medieval times was practically in the hands of those who might be termed cosmopolitan merchants, who wanted a prompt and effective jurisdiction. It was administered for the most part in special courts, such as those of the guilds in Italy, or the fair courts of Germany and France, or as in England, in courts of the Staple or Piepowder.
The lex mercatoria was composed of such usages and customs as were common to merchants and traders in all parts of Europe, varied slightly in different localities by special peculiarities. Less procedural formality meant speedier dispensation of justice, particularly when it came to documentation and proof. Out of practical need, the medieval lex mercatoria originated the “writing obligatory”. By this, creditors could freely transfer the debts owed to them. The “writing obligatory” displaced the need for more complex forms of proof, as it was valid as a proof of debt, without further proof of; transfer of the debt; powers of attorney; or a formal bargain for sale. The lex mercatoria also strengthened the concept of party autonomy: whatever the rules of the lex mercatoria were, the parties were always free to choose whether to take a case to court, what evidence to submit and which law to apply.
Merchant law declined as a cosmopolitan and international system of merchant justice towards the end of medieval times. This was to a large extent due to the adoption of national commercial law codes. It was also connected with an increasing modification of local customs to protect the interests of local merchants. The result of the replacement of lex mercatoria codes with national governed codes was the loss of autonomy of merchant tribunals to state courts. The main reason for this development was the protection of state interests.
The nationalisation of the lex mercatoria did not neglect the practises of merchants or their trans-border trade. Some institutions continued to function, and state judges also were appointed for their merchant expertise, just as modern commercial arbitrators. The laws of the merchants were not eradicated, but simply codified. National codes built on the principles laid down by trade commercial practise and to a large extent they embodied lex mercatoria substantial rules. This was for example the case in France. The Code Commercial was issued in 1807, where lex mercatoria rules were preserved to govern formation, performance and termination of contracts. In effect, the nation states reconstituted the lex mercatoria in their image.
Common law development
English courts applied merchant customs only if they were "certain" in nature, "consistent with law" and "in existence since time immemorial." English judges also required that merchant customs were proven before the court. But even as early as 1608, Chief Justice Edward Coke said: "the lex mercatoria is part of this realm." The tradition continued especially under Lord Mansfield, who is said to be the father of English commercial law. Precepts of the lex mercatoria were also kept alive through equity and the admiralty courts in maritime affairs. In the US, traditions of the lex mercatoria prevailed in the general principles and doctrines of commercial jurisprudence.
The history of the lex mercatoria in England is divided into three stages: the first prior to the time of Coke, when it was a special kind of law – as distinct from the common law – administered in special courts for a special class of the community (i.e. the mercantile); the second stage was one of transition, the lex mercatoria being administered in the common law courts, but as a body of customs, to be proved as a fact in each individual case of doubt; the third stage, which has continued to the present day, dates from the presidency over the king's bench of Lord Mansfield (q.v.), under whom it was moulded into the mercantile law of to-day. To the lex mercatoria modern English law owes the fundamental principles in the law of partnership, negotiable instruments and trade marks.
Sir John Holt (Chief Justice 1689 to 1710) and Lord Mansfield (Chief Justice, 1756 to 1788) were the leading proponents of incorporating the lex mercatoria into the common law. Holt did not complete the task, possibly out of his own conservatism (see Clerke v Martin) and it was Lord Mansfield that became known as the 'founder of the commercial law of this country" (Great Britain). Whilst sitting in Guildhall, Lord Mansfield created,
"a body of substantive commercial law, logical, just, modern in character and at the same time in harmony with the principles of the common law. It was due to Lord Mansfield's genius that the harmonisation of commercial custom and the common law was carried out with an almost complete understanding of the requirements of the commercial community, and the fundamental principles of the old law and that that marriage of idea proved acceptable to both merchants and lawyers."
- Statute of Merchants 1285 (11 Edw I and 13 Edw I) aka "Statute of Acton Burnell"
International commercial law and arbitration
Lex mercatoria precepts have been reaffirmed in new international mercantile law. National trade barriers are torn down in order to induce commerce. The new commercial law is grounded on commercial practice directed at market efficiency and privacy. Dispute resolution has also evolved, and functional methods like international commercial arbitration is now available. These developments have also attracted the interest of empirical sociology of law The principles of the medieval lex mercatoria — efficiency, party autonomy, and choice of arbitrator — are applied, and arbitrators often render judgements based on customs. The new merchant law encompasses a huge body of international commercial law.
Present and future commercial law
In summary, nation states somewhat fragmented the medieval lex mercatoria but it is far from destroyed. Local interests triumphed in the medieval ages, just as national interests do today. A modern variant of the lex mercatoria is the evolving law and dispute resolution in cyberspace. Internet traders are the fastest growing body of merchants in history. Parties can solve domain-name disputes online expeditiously and quickly. In a virtual court documents are filed and examined online, arguments are made online and decisions are published online – seldom challenged before traditional courts of law. ICANN's UDRP (and its proposals for Rapid Suspension) and Nominet's DRS are examples of this. The medieval, the modern and cyberspace merchant laws face comparable issues of enforceability. They solve the problems somewhat differently, but the reaction of the market is the main incentive to comply with a ruling.
Further, Lex Mercatoria is sometimes used in international disputes between commercial entities. Most often those disputes are decided by arbitrators which sometimes are allowed (explicitly of implied) to apply lex mercatoria principles. Therefore, some legal practitioners assume that there is a whole set of legal principles named "lex mercatoria" in international or transnational commercial law. The most recent and constantly updated set of rules are the TransLex Principles collected and formulated by Klaus Peter Berger (University of Cologne) and his Center for Transnational Law.
What remains of lex mercatoria precepts today is a qualified faith in self-regulation by merchants, and a reluctance to surrender the efficiencies of merchant practice to state confinement.
- International commercial law
- International commercial terms
- Law of the sea
- CISG (text)
- Statute of the Staple (27 Edw III, stat 2, c 20)
- Sealy and Hooley (2008) 14
- (1702) 2 Ld Raym 757
- Lickbarrow v Mason (1787) 2 Term Rep 63, 73, Buller J
- CM Schmitthoff, 'International Business Law, A New Law Merchant' in Current Law and Social Problems (1961) 137
- cf. Volkmar Gessner/Ali Cem Budak, eds., Emerging Legal Certainty: Empirical Studies on the Globalization of Law. Ashgate: Dartmouth 1998
- Some examples of such arbitral awards: Collected by Trans-Lex.org
- JH Baker, 'The Law Merchant and the Common Law' (1979) 38 Cambridge Law Journal 295
- JS Rogers, The Early History of the Law of Bills and Notes (1995) chapter 1
- WH Hamilton, 'The Ancient Maxim Caveat Emptor' (1931) 50 Yale Law Journal 133, who shows that caveat emptor never had any place in Roman law, or civil law, or lex mercatoria and was probably a mistake when implemented into the common law.
- C Gross and H Hall (eds), Selden Society, Select Cases on the Law Merchant (1908–32)
- Basil, Bestor, Coquillette and Donahue, Lex Mercatoria and Legal Pluralism: A Late Thirteenth Century Treatise and Its Afterlife (1998)
- G Malynes, Consuetudo vel lex mercatoria (London, 1622)
- W Mitchell, The Early History of the Law Merchant (Cambridge, 1904)
- John William Smith, Mercantile Law (ed. Hart and Simey, 1905).
- The Lex Mercatoria on-line
- The 'Law Merchant' and the Fair Court of St. Ives, 1270–1324 by Stephen Edward Sachs
- Boudreaux on Law and Legislation Podcast on law vs. legislation, including modern applications of lex mercatoria and economic theory. EconTalk at Econlib
- Trans-Lex, a research and codification platform for transnational law / lex mercatoria
- Gesa Baron: Do the UNIDROIT Principles of International Commercial Contracts form a new lex mercatoria?
- Bernard Audit: The Vienna Sales Convention and the Lex Mercatoria