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Transnational Commercial Legal Framework

Info: 3388 words (14 pages) Law Essay
Published: 17th Jul 2019

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Jurisdiction(s): UK Law

This essay will evaluate the extent to which harmonisation can create a truly transnational commercial legal framework, discussing its virtues and shortcomings with reference to harmonising instruments such as the UN Convention on the International Sale of Goods (CISG), concluding that balancing conflicting interests (between drafting provisions with enough flexibility to ensure they come into force, and drafting provisions with sufficient certainty to facilitate transnational commerce) ultimately means that no truly transnational legal framework can be created through harmonisation. This essay outlines the benefits of harmonisation and the barriers, which fall broadly into three categories: drafting, interpretation and use. Using Hobhouse’s view as an example, it will be shown that harmonisation is not a ‘necessary evil’ required to create a transnational legal framework and that other methods may be more in keeping with today’s free market society. The issues will be discussed broadly in this order, beginning with some general benefits of harmonisation as a method of achieving uniformity.

Harmonisation of commercial law is the implementation of instruments such as conventions, model laws and other instruments designed to facilitate cross border commerce. Supporters of harmonisation believe that domestic legal frameworks are inadequate in governing transnational commerce. One of the benefits of harmonisation is that it ‘creates a legal framework tailor-made for international transactions’ [1] and avoids the difficulties of using domestic law. Mistellis comments that harmonisation produces ‘neutral law’, agreeable to both common law and civil law systems, making trade between commercial parties from different systems simpler [2] . Harmonisation avoids a legal system having to abandon its own preferences completely in the name of unification, which may be the case if unification is to be achieved through choice of law and forum shopping as Hobhouse suggests. Mistellis comments that effective harmonisation dispenses with conflict of law rules and the opportunity for ‘notorious’ forum shopping, whilst conceding that ineffective harmonisation results in increased instances and opportunities for forum shopping. The merits of harmonisation and the view that there has been a significant shift away from domestic law and towards transnational commercial law [3] suggest that a truly transnational commercial legal framework may be created through harmonisation. However, barriers to harmonisation and the unavoidable pitfalls threaten the truly transnational nature of the framework.

Barriers to harmonisation fall broadly into three categories: drafting, interpretation and use. Drafting presents the highest number of complications; the key conflict of interests between flexibility and certainty is most evident. Conventions are the most rigid harmonising instruments; they are binding in their entirety (except for allowed derogations) once in force and any amendments must be negotiated and ratified to be effective. This provides certainty and promotes uniformity in transnational commerce. Other forms of harmonisation, such as model laws, offer far more flexibility, which can increase use but has a negative effect on the certainty provided. The difficulties relating to drafting are also illustrated by some particular examples, the first being language and concepts.

Drafters of international instruments, destined for use in potentially every country are always going to encounter difficulties relating to language and translation. An international instrument, by its very nature, must be produced in and translated into several different working languages; this is a difficulty not suffered by purely domestic legislation. Zeller identifies the difficulties presented by language in the drafting of international instruments [4] , and points to one particular example: CISG Article 3(1), which states that the contract is not a sale of goods if the buyer supplies a ’substantial’ part of the material. Apart from this being a vague and subjective term, open to several interpretations (an issue to be discussed later), Article 3 in the German text uses the word ‘wesentlisch’, which has no perfect translation into English [5] . Zeller comments that either ‘substantial’ or ‘essential’ can be used, but the German system uses ‘wesentlisch’ to mean essential. This obviously presents a barrier to any uniformity that could be achieved through harmonisation as these two words mean quite different things. Zeller suggests that when looking at Article 3(1) the word ‘essential’ should be borne in mind in order to overcome any ambiguities that may arise; however it is impossible to do this for every language issue in every international convention; this stems from the wider issue that there is no authentic language [6] . Concepts themselves are often loaded with a ‘national bias’ and ‘the translation of words that form part of concepts of principles is also fraught with difficulty’ [7] . Kastely uses the terms ‘offer’ and ‘acceptance’ in the CISG to illustrate this; these particular words in English carry a ‘rich heritage of legal doctrine…. Yet the translations of these words in the other official versions…do not carry similar implications’ [8] . This may lead to ‘homeward trend’ interpretation, to be discussed in due course. Languages and concepts are not the only issues faced by drafters of international instruments; trying to reconcile differences between various legal systems causes significant problems.

The truly transnational legal framework that harmonisation aims to create is hindered by the unwillingness of individual countries to adopt legal provisions dissimilar from its domestic laws, even where the proposed provisions govern only cross-border transactions; many of these issues are caused by the ‘common law/ civil law divide’. Although not an example of a harmonisation attempt in reality, Eorsi’s ‘Unifying the Law’ [9] provides a drafting scenario illustrating difficulties faced by international organisations such as UNIDROIT and UNCITRAL in drafting harmonising instruments. The piece ends with the ‘compromise’ that has been struck: a long and unintelligible provision that serves none of the interests that participated in the discussion. It is demonstrated by this, the CISG and other (albeit less successful) conventions, such as the ECC [10] , that provisions that arise from this ‘compromise’ are often vague and open to various interpretations by lawyers and commercial parties in different contracting states, which is a problem in itself and is discussed below.

Arguably, vague provisions are better than none, which is the case where compromise cannot be reached; some issues are too complex to be tackled in the drafting of binding instruments at all. This issue has attracted commentary with regard to a number of conventions, particularly the CISG and the ECC. Goode observed that issues regarding the passing of property, a prominent legal issue in English law were not tackled in the CISG at all [11] . Similar comments were made regarding validly of contracts in the ECC [12] . The exclusion of these important factors requires courts to look at their own domestic law when considering a cross-border transaction, even where relevant international rules apply. This undoubtedly weakens the truly transnational element of the legal framework created by harmonisation.

The final drafting weakness to discuss is that provisions in the instruments themselves threaten uniform application and outcomes and therefore threaten the truly transnational nature of the legal framework. These are permitted derogations made by contracting states and provisions such as CISG Article 28. Keily [13] points to specific examples of derogations that threaten the uniform application of the CISG including Article 96, which allows a state whose law has writing (form) requirements to exclude any part of Article 11, 29 or Part II (contracts under the CISG need not be in writing). This sort of derogation no doubt encourages forum shopping, as commercial parties know that their contract will be treated differently, and indeed may not be valid in states that have made this particular derogation, e.g., China, Argentina or Russia [14] . This argument is further supported by the nature of Article 28 of the CISG, which provides that a court need only enter a judgement of specific performance if it would under its own national law. Whilst Garro comments that the above examples and ‘illusionary compromises’ are sometimes necessary in order for drafters to complete their work [15] , He concedes that they are disadvantageous for the cause of unification and therefore damage the truly transnational element of the legal framework. While this does not necessarily detract from the merit of harmonisation , the ‘saving the bulk of the cargo by throwing a small part of it overboard’ [16] approach certainly hinders the extent to which harmonisation can create a truly transnational commercial legal framework. The drafting stage of the harmonisation process is one of three stages where barriers can occur; the obstacles occurring at the interpretation stage will now be considered.

Interpretation of international instruments must necessarily be different to the interpretation of purely domestic legislation. Uniform interpretation is difficult and, arguably, impossible to achieve due to the tendency of lawyers, judges and commercial arbitrators to interpret in line with national legislation or with domestic principles in mind [17] . This is known as the homeward trend [18] and is damaging to the aims of harmonisation. Cross identified the Rotorex case [19] as an example of the U.S courts interpreting in this case the CISG in a homeward trend, using domestic contract law principles and analogous cases to fill gaps. This decision and other similar cases were heavily criticised by CISG scholars such as Schneider [20] , who criticised the Delchi Carrier Court for its “inability to set aside its own national thinking” and described the case as an “unfortunate first decision” on the CISG’s rules on consequential loss. Cross argues that categorical condemnation of the homeward trend is ‘unwarranted’ and may enhance legitimacy in the long run, discouraging parties from excluding international conventions such as the CISG [21] . Ferrari considers this view to be surprising [22] and not tenable, stating that ‘nationalist’ rather than ‘autonomous’ interpretation can lead to only one conclusion: “Indulging in the homeward trend, obviously, constitutes a serious–quite possibly the most serious–threat to the main purpose of the CISG: progress toward a uniform regime of international sales law.” While Ferrari’s comments refer specifically to the CISG, his conclusion applies to other harmonising instruments. Any difference in interpretation threatens uniformity, further supporting that harmonisation of commercial law cannot create a truly transnational commercial legal framework.

Another specific weakness of harmonisation of commercial law is the ‘transplant effect’. Arvind discusses this with reference to arbitration law; however the principle is the same across harmonisation of commercial law. The transplant effect is the phenomenon that the same provisions can be interpreted and applied so differently that, despite being the same provisions (albeit it potentially with language differences) the laws take on different forms depending on which national court is applying them. The threat to uniformity is clear: “The case law and academic scholarship associated with the original law may, for example, be accepted in part and rejected in part, or even ignored altogether, producing a law that is in some ways different, notwithstanding its common origin. Or, alternatively, the transplanted law may diverge simply because it comes to be used and applied in different ways” [23] . It is relatively easy for national courts to fall foul to this; there is no international court of reference and even though there is a central database for cases applying the CISG [24] , many remain unreported, and those that are reported are in several different languages, which gives national courts even more scope to misinterpret previous case law or to ignore it altogether. This, coupled with the ‘homeward trend’ problem make interpretation a difficult stage in the harmonisation process, and these concerns reduce the extent to which harmonisation of commercial law can create a truly transnational commercial legal framework.

The final category of barriers is use; even if harmonising instruments were perfectly drafted, accepted and applied uniformly by contracting states, the fact that states choose not to use harmonising instruments, take advantage of derogations and that commercial parties can readily exclude their application significantly reduces the extent to which harmonisation can create a truly transnational legal framework. National legislatures are reluctant to accept change, particularly where successful compromise between the traditions of different legal systems has not been satisfactorily reached; the UK’s failure to ratify the CISG, despite being a widely adopted measure, illustrates this [25] . In the case of achieving uniformity through harmonisation, the fact that parties can exclude the application of international conventions and opt for a domestic law of their choice instead is fatal to the creation of a perfectly uniform law from the top down. Commercial parties ultimately have the final say over which laws apply to their transaction. Together with the previous point this means that even a perfect instrument, capable of being applied uniformly may still be obstructed by legislatures or commercial parties themselves, effectively thwarting the aims of harmonisation to create a truly transnational commercial legal framework.

While party autonomy acts as a barrier to ‘top-down’ harmonisation, it serves a useful purpose in achieving uniformity and a framework that is truly transnational through other methods. Hobhouse comments that uniformity can be achieved through party autonomy, in that, the better legal systems will be encouraged to develop through parties’ choice of laws [26] . It is his view that the free market will choose the legal systems and rules that they prefer through the rules of private international law, bringing legal business to states that offer the best systems; consequently states losing out will adjust their laws to reclaim this business. The merit to this idea is that eventually uniformity will arise that caters to the needs of commercial people as it will have been chosen by them, whereas the creation of international harmonising instruments are largely an academic exercise [27] , detached from commercial reality.

In conclusion, the particular problems faced by harmonisation of commercial law significantly reduce the extent to which it can create a truly transnational commercial legal framework. This essay has examined some of these difficulties and how they obstruct uniformity and some merits of harmonisation and the potential for success. Drafting poses the problems of language and concepts;they can mean different things between languages and that they can carry a national bias in some jurisdictions and not in others. Legal rules produced through harmonisation may be vague, although arguably (as discussed above) this is preferable to no rules, which is the case where no effective compromise could be struck or concepts, such as property or validly, are too complex to tackle. This is unaided by the fact that interpretation also varies between jurisdictions and courts can interpret in a ‘homeward trend’ or that the legal rules could be susceptible to the ‘transplant effect’, problems which do not arise in the interpretation of purely domestic legislation. Use, or lack of it, is the final obstacle to harmonisation: perfectly drafted instruments may not be ratified or may be excluded by parties even in contracting states, which is damaging to uniformity in the case of harmonisation and achieving unification in this way. These issues are fatal to the truly transnational legal framework that harmonisation aims to create. Arguably, harmonisation is successful in facilitating cross-border transactions; however ultimately, due to the irreconcilable tension between competing interests among legal systems and the overriding tension between certainty and flexibility mean that the commercial legal framework that has been created by harmonisation cannot be described as truly transnational.

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