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The term 'lex mercatoria' derives its root from a body of trading principles used by merchants throughout Europe in the medieval times. In recent decades it is regenerated as a sort of international commercial law displacing the use of national law in international transactions. The idea of application of national laws to international commercial is uninvited as it denies the parties freedom of choice of law which is the basic tenants of the party going for arbitration.

The concept that parties, by agreement can authorize an arbitral tribunal under the equity clauses to act as 'amiable composituer' and also to decide as 'aequo et bano' instead of deciding in accordance with the traditional system of the law, was named 'lex mercatoria' by lt Professor Goldman.

The existence and impact of lex mercatoria are accepted in contemporary international commercial laws, while the modernized and revised national rules relating to international commercial law reemphasize in increasing the use and influence of lex mercatoria in the international sphere.

Party autonomy rules:

All of the modern arbitration laws recognize the principle part autonomy; the parties are free to determine substantive law applicable to their disputes. It is an accepted fact. Art 28(3) of UNCITRAL Model Law leaves the freedom to parties to authorize the arbitral tribunal to act as amiable compositeur and decide ex aequo et bano. This provision has been verbally adopted in Section 28(2) of the Arbitration and Conciliation Act, 1996. In order to provide consistency with the Model Law, Sec 46(1) (b) of the English Arbitration Act 1996, provides that arbitral tribunal shall decide the dispute 'if the parties agree, in accordance with such considerations as are agreed by them or determined by a tribunal'.

Dealing more particularly with the problem of raising the corporate veil, the arbitral tribunal stated:

The Application of international standards offers a lot of advantages. They apply in uniformity and are independent of the peculiarities of any of the particulars of national law. They take due account of needs of international intercourse and permit cross-fertilization between the systems that may be unduly wedded to the conceptual distinctions and those that look for pragmatic & fair resolution in an individual case. This area hence offers an ideal opportunity for applying what is increasingly called the lex mercatoria.

The pros and cons:

The application of non - national rules of law that is lex mercatoria is unapproved and adopted by all national arbitration laws. It is supported by the fact that the UNCITRAL Model uses the term law instead of rules of law, which presents the view that the intent behind such usage is to ensure the application of national law. Lord Mustill said Lex mercatoria has sufficient intellectual credentials to merit serious study, and yet it is not so generally accepted as to escape skeptical eyes. These two immediate advantages of lex mercatoria are that they can be useful to suit real business needs and the application and are uniform in application thus avoiding vagaries of different national laws.

  • Lex Mercatoria
  • International Commercial Arbitration
  • Maxims

BY : Dhatri Shukla

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