Succinct background of Arbitration amongst Merchants
For ages, merchants all across the globe in the form of individuals or even as members of trade organizations or guilds primarily rested to arbitration settle disputes amongst themselves. In an extremely rudimentary sense arbitration at the time was described as virtually a system of justice born out of merchants its minimal success was primarily due to moral instead of legal compulsions. People in business, who initially failed to comply with decisions and rulings of trade associations and guilds were subject to disciplinary measures and even faced severe consternation and castigation from their community. Various local chambers pertaining to commerce across the globe resorted to their own specific rules of arbitration for the compulsory settlement of disputes between members and eventually later, even amongst members as well as non-members.
In the cutthroat world of international commerce, arbitration eventually became recognized as a system for ultimately resolving and solving disputes which arose from issues revolving around international trade. These initial arbitrations were generally initiated and conducted on a primarily ad hoc basis which according to the Lex mercatoria or mercantile law of the time with which parties were familiar with and based on which they were expected to have made their contracts. Merchants in ancient times were essentially itinerants who peddled their goods in all continental markets as well as fairs. Traveling together for protection, they would carry their wares from one market fair to another along the way continually negotiating, bartering as well as selling. The disputes of these respective traders were settled eventually by what was deemed as “fair law” that is based on the universal customs of merchants primarily making no reference to the law or the courts in the vicinity. Foreigners mostly preferred their disputes and quarrels to be adjudicated or resolved based on their law merchants respectively, rather than relying on common law with various kinds of mediators or arbitrators who were appointed from amongst their kind.
Sir William Holdsworth in his magnanimous treatise: A history of English law had stated that all across the continent in courts primarily presided over by merchants who were the main foundation of commercial and maritime law, and in England, the medieval law merchant was based on a similar premise and foundation. Amongst various mercantile as well as merchant cases there was usually a sense of direction that eventually these cases were to be settled on the whole by arbitration, and among the same arbitrators, there were usually merchants. Similar records show us that the whole law and practice of insurance emanated in the initial instance from the same merchants itself. In the year 1585, the various governing bodies at the time of various companies around, which in turn primarily had a monopoly of foreign trade in several parts of the world, had the power to settle differences and disputes that mainly arose amongst their members.
Source: Harmony Amidst Disharmony: The International Framework- Fali S Nariman