Harmonization of International Commercial Law

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SUMMATIVE ASSESSMENT

Introduction

The international commercial law has grown and modified in twentieth century. Technological advances made international transactions easy and more efficient for the merchants to buy and sale across state borders. The move towards globalization comes with it several problems both for lawyers and legal systems. Outdated legal rules are obstacle to economic growth and technological development. Due to the economic demands there has always been a heavy tendency in international commercial law to uniform and harmonise. This assessment focuses on discussing the methods to achieve harmonization of international commercial law and the reasons of many areas of commercial law remain unharmonised.

Harmonisation

Harmonisation, is a process which may result in unification of law subject to a number of (often utopian) conditions being fulfilled, such as, for example, wide or universal geographical acceptance of harmonising instruments, and with wide scope of harmonising instruments which effectively substitute all pre-existing law. Harmonising instruments have two objectives. The first purpose is unification of law and the second purpose is creating a law reform when the current law unable to deal with developing commercial practices.

The harmonisation of commercial law is considered a key factor in reducing the cost of doing business as it provides the certainty and predictability for the parties of a contract in international transactions.[1]

Methods of Harmonisation

A considerable number of methods came out to achieve these goals. These methods are; legislative (conventions, model laws and model legislative or treaty provisions), explanatory (legislative guides and legal guides for use in legal practice), and contractual (standard contract clauses and rules)[2]

International Treaties or Convention

International treaties or conventions are binding forces and will be applied directly but they are not effective unless it ratified by the nations. Treaties or conventions which represents hard law methods of harmonisation are the primary instruments. They usually embody a uniform law. Due to the international treaty reservations the degree of the uniformity decrease. Interpretation differences or mistakes may be dangerous for the uniformity of international conventions. The rules of international convention would classify the law applicable to the controversy, and the judge would make the selection of the applicable law of the jurisdiction which is highly foreseeable, fair and adequate.

Conventions provide certainty of law, flexibility and adaptability however, there are some arguments against conventions. Individual nations do not intent to negotiate conventions as an equal partners. Because of this sovereignty problem may arise in the context of international commercial regulations. The negotiation and drafting process of international conventions are slowly and expensive process. Worldwide impact of conventions on domestic law reform appears to be less important impact than model laws or other soft law instruments. It is assumed that conventions decrease the competition between legal systems and regulatory arrangements.

Conventions are specific and fragmentary in character. They lack coherence and consistency. Delays in ratification of the convention means it may take for a long time before the convention comes into force. They still don’t have ability to react changing circumstances. They may create issues about their scope. The subject of the courts are interpretation of the statutory law and there is no guarantee that harmonised law will be interpreted in harmonised manner. International conventions are hard to amend in instances requiring a place to economic change or progress of technology or practice. Rigidity of the conventions during the treaty making process and their lack of flexibility discourages nations from implementing to international conventions. They announce uncertainty that no uncertainty existed before.

Some examples of harmonising conventions are Vienna Convention on Contracts for the International Sale of Goods , the Geneva Convention on Agency in the International Sale of Goods, UN Convention on International Bills of Exchange and International Promissory Notes, the Cape Town Convention on International Interests in Mobile Equipment.

Model Laws

Model laws are more flexible than treaties and have no legal force, so they have soft law character. Soft law, policy declarations, guidelines or codes of conduct that set standard of conduct and not directly enforceable. Therefore, they are advisory. Domestic legislation changed for international trade to provide solutions for the international transactions. The model laws are facultative harmonising instrument which are not legally operative. With or without amendment individual nations may adopt model laws entirely or partly. However, with respect to unification their use is limited as adopting countries are under no obligation either to apply the law or accept it without variation. Furthermore, model laws mainly benefit t those countries whose law is underdeveloped in the area covered by the model law.[3]

Modern Laws are more appropriate for the unification and modernization of national laws. Flexibility of the modern laws makes them easier to negotiate than a text containing obligations can not be changed.

UNCITRAL Model Law on International Commercial Arbitration is a good example for model law. Large amount of jurisdiction have adopted it. In the modern global environment it is very powerful motivation for harmonization. Especially, for the developing countries which are moving from mixed or planned economies to a free market economy. Another successful instance in the area of international commercial law is the Model Law on Cross-Border Insolvency.

Legislative Guides or Legal Guides

They have soft law character. They can be very detailed but their effect is limited because of their non-binding nature. Governments and legislators are the users of legislative guides. Legislative guides are ideally suited to an organization like UNIDROIT. When it is not achievable or essential to develop set of rules, legislative guides may be an alternative for giving explanations in respect of contract drafting.

International Business Practice Guides

International business practice guides are addressed at professional and trade associations.

Generally, guides are educational practices that discusses technical, economic and real background of legal problems. Also they explain and find available solutions for the legal concepts and concludes by making recommendations.

International Trade Terms

International trade terms promulgated by non-governmental organization. If they incorporated into a contract they can have the force of law. INCOTERMS rules codifying custom and usage such as the ICC’s Uniform Custom and Practice for Documentary Credits. This is, obviously, a reference to “codifications” and restatements by international scholars and practitioners such as UPICC and PECL.[4]

Restatements

Its addresses and potential users are not only contract drafters, but national and international legislators, arbitral tribunals and courts as well.

Restatements of contract law promulgated by scholars and experts. They are advisory and they have soft law character.

Principle of European Contract Law (PECL)

Principles of European Contract Law (PECL) was published by the Lando Commission in 1995. This commission consisted on European contract law academics. It aims  to  produce  European  Commercial  Code.  Principles  are  more  limited  in  scope  and  they don’t  have  legal  force.  However,  contracting  parties  may  agree  to  give  their  contracts  binding  effect  about  their  contract  subject.  Many  countries  followed  their  instructions  as  a  model  law  reform  project  and  parties  to  a contract  chose  them  to  govern  their  contract.  They  contributed  a  key  role  to  the  development  of  European  Contract  Law.

Unidroit  Principles  of  International  Commercial  Contracts  (UPICC)

UPICC  represents  the  legislative  codification  of  restatement  of  a  law  of  international  commercial  contract,  but  do  not  have  the  force  of  law.  They  offer  a  set  of  rules  produced  by  scholars,  which  cover  all  important  areas  of  general  contract  law  and  appear  to  be  a  resource  for  those  courts  and  arbitral  tribunals  who  find  them  helpful.[5] Although  these  principles  are  not  binding,  they  have  managed  to  earn  recognition  around  the  world,  in  academic  circles  and  practice.  UPICC  can  response  the  questions  that  not  covered  by  the  CISG.  These  are  would  be  fraud,  authority  of  agents,  third  party  rights  and  others.  UPICC  is  more  comprehensive  instrument  than  CISG.  UPICC  often  applied  as  a  gap  filler  to  interpret  and  supplement  law  instruments  and  specifically  the  CISG.

Institutions

Intergovernmental  and  non-governmental  agencies  have  been  involved  in  the  harmonisation  process.

International  Institute  for  the  Unification  of  Private  Law  (UNIDROIT)

UNIDROIT  is  an  intergovernmental  agency  that  interested  with  not  only  commercial  law  but  also  whole  private  law.  Management  of  researches  and  drafting  conventions  are  the  purposes  of  UNIDROIT.  UNIDROIT  has  produced  conventions  which  designed  to  operate  besides  the  Vienna  Convention  on  Contracts  for  the  International  Sale  of  Goods  and  covering  international  factoring,  international  finance  leasing  and  agency.  UNIDROIT  consists  of  General  Assembly,  the  Governing  Council  and  the  Secretariat.  UNIDROIT  put  into  use  to  enforcement  of  international  agreement  or  convention  that  requires  the  approval  of  its  member  countries. The  problem  is  that  trade  law  rules  different  from  one  state  to another.  It  produced   a  Hague  Convention  which  uniform  law  on  international  sales.

United  Nations  Commission  of  International  Trade  Law  (UNCITRAL)

UNCITRAL  is  an  intergovernmental  agency  that  promulgates  conventions,  model  laws  and  other  instruments.  Especially,  it  shapes  a  model  law  which  implements  to  international  commercial  arbitration  when  each  party  to  the  arbitration  has   its  place  of  business  in  a  different  country.  UNCITRAL  also  organizes  the  activities  of  the  different  agencies  involved  in   international  trade  law.  UNCITRAL  aims  to  help  remove  barriers  to  international  trade.  The  most  important  product  which  is  constituted  by  UNCITRAL  is  the  Vienna  Convention  On  Contracts  for  the  International  Sale  of  Goods.  It  aims  to  harmonise  the  rules  governing  the  design  of   rights  and  duties  under  international  sales  contract.

The  difference  between  UNCITRAL  and  UNIDROIT  is  UNIDROIT  was  set  up  to  promote  the  dynamic  harmonisation  of  private  law  and  also  including  commercial  law  whereas  UNCITRAL  is  a  specialist  body  of  United  Nations  devoted  to  the  harmonisation  of  international  trade  law.

International  Chamber  of  Commerce (ICC)

ICC  which  has  an  non-governmental  body  promotes  trade  by  opening  markets  and  encouraging  the  flow  of  capital.  Having  a  non  law  producing  body,  ICC  deals  with  unifying  and  harmonising  commercial law  using  soft  law  methods.  Therefore,  ICC  does  not  focus  on  the  preparation  of  international  conventions  or model  laws.  ICC  promotes  uniform  trade  terms,  uniform  rules  and  model  forms  which  are  adopted  by  contracting  parties.  As  a  result  of  this  ICC  would  not  convenient  for  the  development  of  uniform  rules, preference of  competing  property  rights  or  the  jurisdiction  of  courts.  It  accomplishes  legal  studies  on  topic  and  provides  and  arbitration  service  for  disputes.

It  represents  two  important  international  trading  instruments.  In  the  area  of  international  dispute  resolution  the  ICC  Court  of  International  Arbitration  is  a  leading  institutions.  These  are  INCOTERMS  and  The  Uniform  Customs and  Practice  for  Documentary  Credits.  They  do  not  have  any  legal   status  and  reach  their  legal  effect  through  contract..  INCOTERMS  sets  out  rights  and  duties  for  the  parties  of  international  contract.  ICC  rules  has  a  fairly  high  influence.

New  Lex  Mercatoria

New  lex  mercatoria  is  very  different  from  medieval  lex  mercatoria.  New  lex  mercatoria  can  be  derived  from  various  sources.  The  growth  of  international  trade  and  the  influence  of  mercantile  usage  have  led  several  influential  scholars  to  conclude  that  there  exist  a  body  of  uncodified  international  commercial law,  the  new  lex  mercatoria,  which  has  normative  force  in  its  own  right  and  is  dependent  neither  on  incorporation  by  contract  nor  on  adoption  by  legislation  or  judicial  reception  in  a  national  legal  system.[6] Now  both  professional  associations  and  legal  scholars are  working  for  the  codification  of  new  lex  mercatoria.

It  is  suggested  that  new  lex  mercatoria  might  consist  of  international  trade  usages.  It  has  been  suggested  that  they  might  include  concepts  such  as  UNIDROIT  Principles  of  International  Commercial  Contracts  and  the  ICC’s  Uniform  Custom  and  Practice  for  Documentary  Credits.[7]

Reasons  of  Unharmonised

There  may  be  some  obstacles  about  harmonisation  process  that  it  causes  international  commercial  law  to  remain  unharmonised.  These  obstacles  are  would  be  differences  in  political  view,  language  difficulties,  personality  clashes  and  one  sides  concern  about  another  side  that  taking  too  much  dominant  role.

Harmonisation  is  lengthy,  slow  and  expensive  process.  Preparation  of  instruments  of  harmonization  requires  experience  of  the  time  and  hard  work.  This  is  also  correct  for  all  amendments  and  updates.  It  is  claimed  that  owing  to  the  trend  of  budgetary  constraints  cause  that  legal  harmonisation  may  lead  to  legal  fragmentation.  Economic  efficiency  needs  to  take  into  account.

Sometimes  choosing  wrong  type  of  harmonising  instruments  is  also  another  reason  for  harmonisation  failure.

Harmonising  efforts  have  limited  scope.  These  efforts  to  legislate  for  specific  topics ,  such  aspects  of  the  law  of  sale  or  unfair  contract  terms,  take  no  account  of  the  fact  that  the  treatment  of  such  topics  in  domestic  law  may  be  rooted  in  the  particular  legal  traditions  of  individual legal  systems.[8]

Disparities  between  common  law  and  civil  law  traditions,  socialist  and  capitalist  systems  and  developed  and  developing  countries  creates  problem.  Differences  between  national  legal  systems  also  caused  international  commercial  law  to  remain  unharmonised.  Domestic  legal  systems  which  need  to  implement  the  harmonised  law  should  take into  account.  Although  the  approaches  to  contractual  interpretation  are  the  same,  the  exercise  in  practice  could  be  quite  contrary,  due  to  the  differences   between  civil  law  and  common  law  systems.  The  problem  is  distilliation  of  the  best  legal  rules  from  different  legal  systems  regardless  of  being  tested  in  the  laboratory  of  an  actual  system.

International  contracts  that  considers  the  interests  of  both  parties,  needs  to  contribute  a  fair  balance  between  civil  law  and  common  law  systems  to  which  both  parties  belong  to.  Therefore,  it  is  difficult  to  provide  international  consensus.

In  contract  law area  there  is  a  lack  political  support  of  harmonising  instruments  in  national  law.

Some  scholars  have  argued  that  the  mere  existence  of  different  national  laws  is  a  reason  to  engage  in  harmonization  process.  Professor Stephan points out that divergences in national laws may cause “legal  risk.” In  his  view,  such  legal  risk  can  encourage  opportunism  by  commercial  parties  who  may,  for  instance,  race  to  litigate,  in  a  forum  that  will  suit  their  interests  in  case  something  goes  wrong  with  the  transaction.  One of the  pitfalls  of  the  existence  of   “legal risk”  is  that  at  the  dividing  line  between  risky and  non-risky  transactions  many  parties  may  desist  from  commercial.  Accordingly,  there  may  be  merit  in  reducing  “legal risk”  to  foster.  commerce[9] However,  harmonisation  does  not  aim  to  bring  a  mechanical  lowering  of  risk.  It  may  optimize  the  risk,  rather  than  its  elimination.

Domestic  law  is  capable  of  easy  amendment,  once  a  harmonised   instrument  has  been  accomplished,  signatories  are  locked  into  it  until  a  new  instrument  comes  into  force.  Unless  whole  individual  nations  adopt  the  new  instrument,  there  may  be  more  divergence  then  there  was  previously.  Harmonising  institutions  needs  to  deal  with  this  problem.  They  need  to  prevent  the  crystallization  of  harmonisation.  There  are  two  aspects  about this  problem.  First  of  all,  excessive  time  taken  to  create  international  legal  instruments.  Secondly,  it  is  excessively  takes  long  time  for  nations  to  ratify  the  harmonized  law.

Many  lawyers  remain  doubtful  and  hostile  to  the  harmonisation  attempts.  Lawyers  and  legal  systems  are  unwilling  to  give  up  their  own  laws.  It  is  considered  by  them  that  their  own  laws  are  superior.  It  is  probably  they  also  scare  that  their  national  laws  would  lose  their  dominant  position. Due  to  the  differences  in national  laws  cross-border  transactions  are  limited.  Also  nations  which  have  a  strong  sense  of  superiority  of  their  own  laws  might  unwilling  to  changes  where  these  are  limited  to  transactions  between  businesses  in  different   states.

Issues  of  sovereignty  may  arise  in  the  context  of  international  trade  regulation.  Also  some  language  difficulties  creates  obstacles  for  harmonisation  process.  Accurate  and  clear  drafting  is  very  important  to  prevent  misunderstandings.  Planning  and  management  project  of  harmonisation  process  is   not  easy.  Meetings  may  not  be  successful  to  make  essential  progress.

Problems  with  Institutions

There  are  some  arguments  about  harmonization  interests  the  very  nature  of  the  bodies  that  play  a  role  in  this  area.  These  institutions  are  bodies  of  experts  and  can  not  please  with  traditional  democratic  standards  imposed  on  national  legislatures.  They  are  not  accountable  like  national  bodies.  This  is  the  weakness  of  institutions.  Lobbies  and  interest  groups  may  influence  the  law  in  favour of  themselves.  The  less  powerful  ones  would  not  be  able  to  say  any  things  in  the  drafting  process  so,  international  conventions  and  legislatures  are  saddled  with  a  take  it  or  leave  it  options.  Duplication  of  efforts,  co-ordination  of  work,  inconsistency  of  policy  and  waste  of  resources  are  the   other  problems  that  institutions  need  to  deal  with  during  the  legal  harmonisation  process.

Conclusion

The  harmonisation  of  international  commercial  law  does  not  completely  eliminate  conflicts  but  it  helps  to  reduce  them.

A  proper  reform  of  our  commercial  law  requires  a  careful  study  of  developments  in  other  jurisdictions  in  both  civil  law  and  common  law.  It  is  assumed  that  perfect  harmonisation  is  not  an  achievable  target.  All  states  have  different  national  strategic  interests  therefore,  full  harmonisation  is  politically  impossible   in  certain  areas  of  law.

Bibliography

Books

Goode, R. , Kronke, H. , McKendrick, E. , Transnational  Commercial  Law;  Text,  Cases  and  Materials,  1st  edn. , Oxford,  Oxford  University  Press,  2007

-Goode, R. , McKendrick, E. , Goode  On  Commercial  Law; Edited  And  Fully  Revised 

By  Ewan  McKendrick,  4th  Edition,  Penguin  Books,  2010

-Bradgate, R. , Commercial  Law, Oxford,Oxford  University  Press,  2005

Journals

-Mistelis, L. , Is Harmonisation a Necessary Evil? The Future of Harmonisation and New Sources of International Trade Law,  2001

Faria, J.A.E. ,  “Future Directions of Legal Harmonisation and Law Reform : Stormy Seas or Prosperous Voyage? ” Unif.  Law  Rev,  2009

-Osborne, P.J. ,  “Unification or Harmonisation: A Critical Analysis of the United Nations Convention on Contracts for the International Sale of Goods,   August 2006

Korzhevskaya, A. “Do We Still Need a Convention In The Field Of Harmonisation Of The International Commercial Law” ,  FESCO Transportation Group, (Moscow, Russia) 2014

Gopalan, S. , “From Cape  Town  to  the  Hague: Harmonization  Has  Taken  Wing”, August  2015


[1] L. Mistelis,  “Is Harmonisation a Necessary Evil? The Future of Harmonisation and New Sources of International Trade Law”,  2001,  p.4

[2] J.A.E Faria, “Future  Directions  of  Legal  Harmonisation  and  Law  Reform : Stormy  Seas  or Prosperous  Voyage “, 2009, p.8

[3] P.J. Osborne, “A  Critical  Analysis  of  the  United  Nations  Convention  on  Contracts  for  the  International  Sale  of  Goods  1980”,  August  2006,  p.6

[4] R.  Goode,  H. Kronke,  E. McKendrick,  Transnational  Commercial  Law; Text,  Cases  and  Materials, 1st  edn. , Oxford  University  Press,  2007,  p. 169

[5] A.Korzhevskaya, “Do  We  Still  Need  a  Convention  In  The  Field  Of  Harmonisation  Of  The International  Commercial  Law”,  FESCO  Transportation  Group  (Moscow, Russia) , 2014,  p.89

[6] Goode  and  E. McKendrick,  Goode  on  Commercial  Law,  Edited  and  Fully  Revised  by  Ewan  McKendrick,  4th  edn. , Penguin  Books,  p.20

[7] R. Bradgate,  Commercial  Law,  3rd  Edition,  Oxford  University  Press,  2005,  p.17

[8] R. Bradgate,  Commercial  Law,  3rd  Edition,  Oxford  University  Press,  2005,  p.17

[9] S. Gopalan,  “From  Cape  Town  to  the  Hague: Harmonization  Has  Taken  Wing”,  August  2015,  p.12

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