JAIPUR NATIONAL UNIVERSITY

PROJECT TOPIC: PROS AND CONS OF LAW MERCHANT

SUBJECT: PRIVATE INTERNATIONAL LAW

SUBMITTED TO: SUBMITTED BY:

MR. RAHUL SINGH NAMAN SOLANKI

(ASST. PROFESSOR) B.A. LL.B (HONS.)

S.S.L.G. 9TH SEM.

1
 TABLE OF CONTENTS

PAGE NO.

1. INTRODUCTION.......................................................................................04
2. PROS OF LAW
MERCHANT……………………………...……………………………....06
3. CONS OF LAW
MERCHANT……………………………………………………………...07
4. CONCLUSION……………………………………………………………08
5. BIBLIOGRAPHY………………………………………………………...10

2
 ACKNOWLEDGEMENT

In preparation of my assignment, I had to take the help and guidance of Mr. Rahul sir, who
deserve my deepest gratitude. As the completion of this assignment gave me much pleasure, I
would like to show my gratitude to him for giving me good guidelines for assignment throughout
numerous consultations. I would also like to expand my gratitude to all those who have directly
and indirectly guided me in writing this assignment.

3
 INTRODUCTION

Lex mercatoria, 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.1

In the last years new theories had changed the understanding of this medieval treatise
considering it as proposal for legal reform or a document used for instructional purposes. These
theories consider that the treatise cannot be described as a body of laws applicable in its time, but
the desire of a legal scholar to improve and facilitate the litigation between merchants. The text
is composed by 21 sections and an annex. The sections described procedural matters such as the
presence of witnesses and the relation between this body of law and common law. It has been
considered as a false statement to define this as a system exclusively based in custom, when
there are structures and elements from the existent legal system, such as Ordinances and even
concepts proper of the Romano-canonical procedure

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.

1
https://en.wikipedia.org/wiki/Lex_mercatoria

4
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. In 1303 Edward I issued the Carta Mercatoria, a
charter to foreign merchants in England, which guaranteed them freedom to trade, with certain
protections and exemption under the law. Although the charter was revoked by Edward II, due to
complaints by English merchants, foreign merchants retained most of their rights in practice, but
these would vary widely with the march of time, events and changes to state policy.2

the State necessary for flourishing international trade? Conventional wisdom thinks so. According to
that wisdom, private international commerce would wither without intergovernmental treaties, State
courts dealing with international affairs, and State-crafted legal practices for international merchants.
Some commentators have gone so far as to suggest that a world legal system is needed to ensure the
continual growth of international commerce.

Superficially, at least, the idea that State involvement might be indispensable for international trade
seems sensible. Without it, how could merchants from different legal systems—not to mention
cultures, languages, and religions—make binding contracts, providing the security they need to trade
with persons beyond their nations’ borders? Without a world court for private international
commercial agreements, what law would take precedence in commercial disputes? Which nation’s
courts would handle merchants’ disagreements? And how could merchants secure a fair hearing in
the courts of their adversaries? Without a supranational legal system, or at least national
governments’ cooperation, these and myriad other potential problems stemming from commercial
conflicts between parties from different countries would seem insurmountable.3

Yet private parties have surmounted these problems—without government. International trade first
took off under a private international legal system called the lex mercatoria, or Law Merchant. It
continues to thrive under private legal arrangements today.

2
https://en.wikipedia.org/wiki/Lex_mercatoria
3
https://www.jstor.org/stable/pdf/1820937.pdf

5
In the eleventh century Europeans discovered agricultural improvements that could sustain a larger
population. The growing population increasingly migrated to urban areas. In these cities a new class
of merchants was born. Merchants across Europe were separated by language, distance, and local
law. To facilitate trade, they needed a common set of commercial rules. Out of that need the Law
Merchant was born.

The Law Merchant was a purely informal body of law. It developed out of merchants’ international
commercial customs and shared legal notions. Roman law (the ius gentium) provided many of these
notions, which merchants modified to meet their special needs, as Bruce L. Benson pointed out in
“The Spontaneous Evolution of Commercial Law” (Southern Economic Journal, 1989.)

In its early days the Law Merchant relied entirely on private adjudication and enforcement.
Merchants conducted much of early international trade at fairs throughout Europe. At these fairs
local authorities performed regular activities, such as preventing violence, but they didn’t normally
adjudicate disputes between international traders.

Nor did authorities enforce the terms of private commercial contracts. International merchants
formed their own courts for this purpose and applied their own law to these cases. Merchants’ courts
came to be called “dusty feet courts” because of the condition of merchants’ shoes as they busily
traveled between commercial fairs. In these courts merchants acted as judges, deciding the disputes
of fellow traders on the basis of shared customs. Merchant courts enforced their decisions privately
by threatening noncompliant traders with a loss of reputation and merchant-community ostracism.4

PROS OF LAW MERCHANT

Medieval international merchants used the lex mercatoria’s private system of international
commercial governance instead of government for several reasons. First, they desired speedy
dispute resolution. Disrupting business to resolve contractual disagreements was costly. The Law
Merchant minimized costs by eschewing the formality of State court proceedings. Merchant
courts’ flexible rules of evidence, oral proceedings, informal testimony of witnesses and

4
https://fee.org/articles/the-law-merchant-and-international-trade/

6
unwritten judicial decision-making” hastened the judicial process for time-pressed international
traders, according to Leon Trakman’s The Law Merchant: The Evolution of Commercial Law.

The Law Merchant further reduced the time required to resolve disputes by simplifying the
process of international trade, limiting the kinds of conflicts that might require resolution. For
example, the system dispensed with agents’ need to obtain formal authorization from their
principals to conduct trade with third parties, entirely eliminating a large source of potential
trade-related disputes. The Law Merchant also dispensed with the need for official
notarization to transfer debts between parties. This reduced the cost of international commercial
transactions and precluded another important locus of potential contractual conflict.

Second, merchants used the Law Merchant’s private governance system because it provided
neutral third-party dispute resolution. Using one disputant’s State court would’ve been
undesirable from the other disputant’s perspective. Traders would’ve quite reasonably feared
“home-court bias” from foreign judges. By taking dispute resolution out of either disputant’s
home court, the Law Merchant secured international traders against this concern.

Third, unlike State courts, which were operated by bureaucrats, the Law Merchant’s courts were
operated predominantly by merchants themselves. This was a great benefit to international
traders. Who could better understand the intricacies of international commercial contracts,
correctly detect fault, and assign reasonable remedies than other merchants? International
merchants demanded adjudicators with expertise in the questions before them. Merchant
courts—run by and for the benefit of merchants—satisfied that demand.5

Fourth, the Law Merchant’s private, spontaneously evolved status permitted it to adapt rapidly to
the environment of growing international trade and thus to merchants’ rapidly evolving legal
needs. “Strict rules lacked the flexibility to vary in response to the peculiarities of the merchants,
to their trade background and to their form of bargaining,” Trakman wrote. The lex mercatoria’s
informal rules didn’t. Merchants needed a common legal system that transcended local
languages, cultures, and variances in national laws. But they also needed a system that could

5
https://www.jstor.org/stable/1109926?seq=1#metadata_info_tab_contents

7
vary according to merchants’ regional needs and requirements in specific types of trade. The
Law Merchant satisfied both needs at once.

CONS OF LAW MERCHANT

Merchants couldn’t rely on government legal systems for this purpose. Eleventh- and twelfth-
century governments weren’t normally willing to adjudicate commercial agreements forged in
foreign nations. Even if they had been, it’s hard to see how medieval merchants could have used
State courts to adjudicate their disputes. Governments of this era often didn’t honor contracts that
involved interest payments. This posed a significant problem for international merchants since
they used credit agreements extensively. Common-law courts of the time didn’t even permit
books of account as evidence in commercial disputes. This also posed a major problem for
international merchants since they relied heavily on such accounts. Further, the scope of national
governments’ authority in the eleventh and twelfth centuries was extremely limited. Rulers
couldn’t yet reach individuals outside territory they directly controlled. Thus their ability to
enforce State-court-rendered decisions was nearly nonexistent.6

The Law Merchant was indispensable to the Commercial Revolution. Besides providing rules for
international commerce, it gave birth to negotiable credit instruments, such as promissory notes
and bills of exchange, which are critical to modern trade. Before the twelfth century these credit
devices didn’t exist. It’s no exaggeration to say the Law Merchant played a critical role in
pulling Europe into the modern world.

6
https://digitalcommons.law.lsu.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=5845&context=lalrev

8
 CONCLUSION

Contemporary international trade continues to rely heavily on the Law Merchant to govern
private international commerce. A similar body of international legal customs—the successor to
the private legal rules of the medieval lex mercatoria—provides the basis for contemporary
international dispute resolution. In place of medieval merchants’ “dusty feet courts,” modern
international traders’ disputes are resolved by arbitrators who work for private associations such
as the International Chamber of Commerce’s (ICC) International Court of Arbitration. Nearly all
modern international commercial contracts contain clauses specifying appeal to such associations
in the event of contractual disagreements. In addition to selecting an arbitration forum, modern
international traders select the law they want the association to apply to their case, which can
range from any country’s national law to international commercial custom. International traders
may even select the identity of the particular arbitrators who will hear their case. These
associations emerged as a market response to the demands of contemporary international traders
who see State courts as inferior forums of dispute resolution.

9
 BIBLIOGRAPHY

Sites referred:

1. https://fee.org/articles/the-law-merchant-and-international-trade/

2. https://digitalcommons.law.lsu.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=5845&c
ontext=lalrev

3. https://en.wikipedia.org/wiki/Lex_mercatoria

4. https://www.jstor.org/stable/pdf/1820937.pdf

5. https://www.jstor.org/stable/1109926?seq=1#metadata_info_tab_contents

10