Business in Europe encountered a renaissance in the eleventh and twelfth centuries. This development was brought about most importantly by the way that the eastern markets had gotten to be reachable and second by the political and financial evolutions in Europe.

Transnational law is derived from international sources such as international conventions and international usages, it should be part of national law as an autonomous body of rules applicable to international business transactions. In the same time transnational law is the uniform law developed by parallelism of action in the various national systems in an area of optional law in which the state in principle is disinterested. Norbert Horn, like Schmitthoff, expresses the view that "this phenomenon of uniform rules serving uniform needs of international business and economic cooperation is today commonly labeled lex mercatoria”.

The Relation Between the New Lex Mercatoria and Arbitration

The parties may choose the lex mercatoria as the applicable law to their international contract. If there are no conflicts between them, or if any conflict is resolved amicably, then the contract will be governed only by the lex mercatoria, not by any national legal system. However, if there is a dispute that proves impossible to resolve amicably, the parties may resort to arbitration to solve the matter.

Eight Western European countries (Belgium, Austria, Denmark, the Federal Republic of Germany, Finland, France, Italy and Spain) and most of the socialist countries of Eastern Europe have ratified the European Convention of 21 April 196135 on International Commercial Arbitration. According to Article I this Convention applies to international arbitration agreements when concluded between persons having their residence in different Contracting States and to arbitral procedures and awards based on such agreements.

Article VII(1) of this Convention provides that "the parties shall be free to determine, by agreement, the law to be applied by the arbitrators to the substance of the dispute. Failing any indication by the parties as the applicable law, the arbitrators shall apply the proper law under the rule of conflict that the arbitrators deem applicable. In both cases the arbitrators shall take account of the terms of the contract and trade usages."

This provision presupposes that a national law is to be applied to the substance of the dispute. However, under Article VII(2), the arbitrators act as amiables compositeurs if the parties so decide and if they may do so under the law applicable to the arbitration. Considering that the lex mercatoria will tie the arbitrators to legal rules more than a decision made by an amiable compositeur, this comes close to saying that arbitrators may decide the case on the basis of the lex mercatoria when the parties have so decided and when they are permitted to agree upon an amiable composition under the law applicable to the arbitration.

The Lex Mercatoria and Case no. 9875

In International Chamber of Commerce case no. 9875 an arbitral tribunal, in its partial award of January 1999, decided to apply the lex mercatoria. The claimant was a French company which was given an exclusive license to manufacture, sell and distribute the respondent’s products in Europe. It appears that the respondent was a Japanese corporation. In 1996 the respondent entered into another licensing agreement with a third company which covered Asia. The claimant contended that this agreement infringed its exclusivity in Europe. The contract did not contain a choice of law clause and the arbitral tribunal considered that no national law applied. It dismissed the arguments that the law of one of the parties should apply namely French law or Japanese law or the law of the place of arbitration, Belgium.

According to article 17 (1) of the ICC Rules, “In the absence of an agreement between the parties upon the rules to be applied to the merits of the case”…the Arbitral Tribunal shall apply the rules of law which is determines to be appropriate. Article 17 (2) adds: “In all cases the Arbitral Tribunal shall take into account the provisions of the contract and the relevant trade usages”. The provisions of the contract are not decisive. It contains references to France and other European and non European countries as well as to Japan. The Sales Territory described in Exhibit II covers “All countries of the world, other than Canada, except French territories”. The license is granted for patents held by Japanese companies. Technical assistance will be provided by the Defendant at the Claimant’s factory in France (art. 4). The Claimant has agreed to pay royalties in Japanese currency (art. 6).

In license agreements, the appropriate law is sometimes considered to be that of the country where the licensor is located (in this case Japan), assuming the most characteristic performance of such contracts would be that of the licensor. However, this is not an absolute rule, for example the law of license is sometimes preferred. Another significant factor consists in the geographical scope of the rights licensed to the Claimant, which do not exclusively lead to French law, but would eliminate Japanese law. The arbitral tribunal considers that the difficulties to find decisive factors qualifying either Japanese or French law as applicable to the contract reveal the inadequacy of the choice of a domestic legal system to govern a case like this. A contract concluded between Japanese and French companies concerning a license to manufacture products and to sell them in various parts of the world is not appropriately governed by the national law of the one of the parties, failing agreement on such a choice.

The arbitral tribunal than decided to apply the lex mercatoria:

“The most appropriate “rules of law” to be applied to the merits of this case are those of the lex mercatoria, that is rules of law and usages of international trade which have been gradually elaborated by different sources such as the operators of international trade themselves, their associations, the decisions of international arbitral tribunals and some institutions like Unidroit and its recently published Principles of International Commercial Contracts”.