Lex Mercatoria

I. Introduction:

Lex Mercatoria or Law Merchant was a body of rules and principles relating to merchants and
mercantile transactions, distinct from the ordinary law of the land.1 It was in many ways an
attempt by the merchants to evade the proceduralities and the rigidities of the general law which
applied to the normal populace. Thus, instead of looking to the sovereignty and sanction for its
force, Lex Mercatoria relied more upon the principle of good faith. That constituted the both
its basis and the source of its power for a merchant found in violation risked the loss of his
credibility and reputation in the community of merchant of which he is a member.2

It being a body of legal rules and principles for merchant community, it was essential that it
had uniformity across the countries whose merchants engage in trade with each other. On the
other hand, being primarily a customary law instead of positive law, it essentially differed from
place to place. However, despite being a customary law, the requirements of constant trade and
ingress and regress of traders of various nations essentially also made many basic principles of
Lex Mercatoria uniform across nations. Thus, while boasting of a certain level of consistency
and uniformity across the different European nations, there is also diversity which is a result
of the different local essentialities.3 To further assist this uniformity and consistency, at various
times, various nations evolved their own codifications of the Law Merchant, which attempted
to unify into a body of law. But despite these various codifications, neither did the old merchant
customs lose their relevance not did they impede new customs from being made by the
merchant community and being recognised by the merchant courts, since the codification
seldom claimed exhaustive authority.

II. Characteristics of Lex Mercatoria:

Across the different nations and the city-states of Medieval Europe, Lex Mercatoria had three
essential characteristics:

(i) Customary Law: It was essentially a customary in nature and hence its source was not
a sovereign like the general law of the realm, which was positive in nature. Being

1
W. Mitchell, An Essay on the Early History of the Law Merchant 10 (Cambridge University Press, Cambridge,
1904).
2
Leon E. Trakman, “The Evolution of the Law Merchant: Our Commercial Heritage”
3
Supra note 1, at 9-10.
 customary law, it was extremely practical, adopting to the needs and requirements of the
merchant community as and when the need arose.4
(ii) Summary Procedure: As stated earlier, Law Merchant was essentially also an attempt
by the merchants to escape proceduralities and the rigidities of the general law. This was
often in the yearning for a speedy justice, which is a necessity for a merchant in those
days. For a foreign merchant who entered a nation for the purpose of trade often even a
day’s delay is very costly. Thus, not only were the disputes between merchants resolved
based on their own different law, but also by separate courts, which consisted solely of
the merchants. They were generally exempted from the jurisdiction of the general civil
courts of the realm.5 Indeed at later dates, when the trade between various merchants took
place mostly in fairs and markets regularly or occasionally held at various important
trading stations, the charters or letters patents or permits of the sovereign which permitted
their establishment or conduction often also included clauses, granted as a matter of
course, the exclusion of any disputes in these fairs from the general jurisdiction of the
ordinary courts.
(iii) Equity: Law Merchant was essentially based on equity. In a similar manner, the
merchant courts which administered it were sworn to decide the matters. They decided
the matters according to the ancient customs of the merchants or where they were silent,
ex aequo et bono and not according to the technicalities of the law.6
III. Evolution of Lex Mercatoria

Pre-Roman Era:

The requirement for customary law is essentially one due to the lack of a positive law, which
in itself is a requirement arising out of the lack of a sovereign who reigns over the large number
of regions across which trade and commerce is conducted. As such, even prior to the emergence
of Rome as the pre-dominant Mediterranean power, there was a group of mercantile customs,
which was followed throughout the Mediterranean world, which was later codified as the Lex
Rhodia or the Sea Law of Rhodes in 300 B.C., which later found its way even into the Roman
laws.

Roman Era:

4
Id., at 10-11.
5
Id., at 12-16.
6
Id., at 16-20.
With the vanquishing of Carthage in the Second Punic War in 201 B.C., Roman Empire took
the most important step in domination of the Mediterranean trade. With Roman rule extending
over the entirety of the Mediterranean coast and its domain in Europe extending beyond Gaul
(Modern France), to Britain, a uniform legal system governed much of western world, which
formed the basis of law which governed the commerce and trade not only in Europe as such,
but also with east since the roman domains extended into east as far as the Persian empire. The
Roman Res Juntium thus formed the basis of the Commercial Law as far as Trade inside the
Roman empire as also with the east.

Post-Roman Era:

The collapse of the Roman Empire ushered in Europe where there was a lack of a centralised
authority. Lacking army to control their territories themselves, rulers were instead forced to
rely upon the nobility, therefore giving rise to the system of feudalism. This heralded
specifically in the medieval Italy, which were divided up into a number of individual city states
and medieval Germany (then known as the Holy Roman Empire), which consisted of various
independent city-states, hereditary and religious rulers, under the nominal Emperor. These
individual city states ultimately became the new trade centres. Various free cities of the Holy
Roman Empire together formed the Hanseatic League, for the purpose of protecting their
commercial dominance. Italian city-states, soon became hugely successful in commercial
activities acquiring a lot of prosperity. Individual city-states therefore became important
centres of trade and these individual centres also became the major sources for Lex Mercatoria.

By the first crusade (1095), the Italian city of Amalphi (now Amalfi) was very dominant in
Trade in the Italian states and the Mediterranean and became source for a new set of maritime
laws, which were known as the Amalphitan table.7 In the Atlantic Ocean, the maritime laws of
the French island of Oleron were codified as the Rolls of Oleron, which were accepted in
generality in the cities all over the Atlantic coast, including various English cities. Indeed, the
Rolls of Oleron had a tremendous influence on even the English Admiralty Law. The customs
of the Spanish city of Barcelona was source for the Consulato del Mare8 Subsequently, in the
city of Visby in Gotland island of Sweden was developed the Laws of Visby, which were a set
of maritime customs followed across the Baltic Sea.

7
Harold J. Berman, Colin Kaufman, “Law of International Commercial Transactions (Lex Mercatoria)”, 19
Harvard International Law Journal 224 (1978).
8
Supra note 2, at 4.
As noted above, these various cities adjudicated mercantile disputes based upon Lex
Mercatoria not in the ordinary courts of the land but in the special merchant courts. In the Holy
Roman Empire, the permits of the Emperor granting the right to a city to conduct a fair as a
matter of course included also the right to decide any such disputes that arise at such fairs to
be decided by the merchants according to their customs. Similarly, though subject to the
ultimate confirmation by the State, the Italian mercantile customs and laws were administered
by the local guilds, which were made up of the merchants. This constituted merchants as a
distinct class amongst populace.9 Even today, in France, tribunaux de commerce, the oldest
system of courts deal with solely commercial matters.

IV. Incorporation of Lex Mercatoria into Common Law

Unlike in France, the Law Merchant was slowly incorporated into the Common Law in
England and even to this date forms the basis of much of the commercial and maritime laws
of the Common Law countries. Prior to 1606, the merchant disputes could be tried only by
the merchant courts to the exclusion of the jurisdiction of the King’s Courts of Common Law.
However, during the Chief Justiceship of King’s Bench Lord Coke from 1606, the special
merchant courts slowly gave way to the Common Law courts, with the latter slowly wresting
away jurisdiction from the former. But the disputes were still administered by the use of
customs and it was necessary for either party plaintiff or the defendant, to be proved as a
merchant and requirement of pleading of decision according to the custom of the merchants.
The customs themselves were to be proved in each and every case when the necessity arose.
This second period continued till Lord Mansfield, a Scottish barrister took over the post of
Lord Chief Justice of the King’s Bench in 1756. He slowly started the long-drawn process of
incorporation of the principles of Merchant law into the Common law, by referring to various
foreign authorities, the principles of lex mercatoria concerning various branches such as
negotiable instruments, partnerships etc. This was slowly continued under the Judges who
succeeded him, resulting in a complete incorporation of lex mercatoria into the English
Common Law.

9
Supra note 1, at 39-78.