Article by Georges R. Delaume
Transnational contracts involving states arise in a myriad of contexts and forms. To include all such agreements within the scope of a universal definition would be misleading. For the purpose of this Article three basic situations can be distinguished, one of which is directly relevant to this discussion.
The first category of transnational contracts raises no particular problem in the sense that the legal framework of such contracts is clearly identifiable. It includes transactions conducted in a business-like manner by states with other states or international organizations. These transactions are generally governed by international norms which form part of a new international commercial law in the making. Although nothing prevents the parties from subjecting their relationship, or some aspects of it, to municipal law, this option does not detract from the basic rule that such agreements are generally governed by emerging principles of international commercial law. No more, therefore, needs to be said about this type of contractual arrangement.
Another category of contracts, which can also be discarded, concerns purely commercial transactions, such as those pertaining to East-West or North-South trade. Today, these transactions are not concluded by states, but rather by specialized public entities operating in a municipal law context. The independence of these entities from their own government may be relative and, at times, highly questionable. There are instances in which ‘piercing the veil’ of the relevant entity may be fully justified in order to prevent a state from shielding its own activities behind those of its alter ego. Yet, in this type of situation, the solution to the problem is not found in a separate body of rules applicable to state contracts; it must be sought in the relevant rules of the law applicable to the contract, including those rules concerning excuses for nonperformance due to governmental interference.
This discussion may be confined to a third category of transactions concluded between a state as a direct party in interest, and foreign private-law persons. Even so limited, it is clear that the scope of the inquiry encompasses a great variety of transactions, including transnational financial arrangements, contracts between state and foreign entrepreneurs, consultants or suppliers of technology and know-how, and so-called economic development agreements with foreign investors. Some of these transactions may follow traditional patterns of conducting business which, although they may be refined to account for the particulars of transnational situations, are not substantially different from their domestic counterparts. Other transactions, most of which are of recent vintage, are truly the creation of the transnational business community and have no real antecedent in either domestic or international law.
Because a contract cannot exist in a legal vacuum, the view has been advanced that these sui generis contracts should be governed by a separate legal system specifically designed to regulate situations that neither domestic nor international law was intended to cover. This third legal system would constitute a modern Lex Mercatoria whose proposed scope, however, remains somewhat fluid depending on the views of its sponsors. Thus, certain advocates of the new doctrine would include in it both state and other contracts, whereas other consider that the Lex Mercatoria should be the basis of a transnational law of state contracts, considered in their individuality.
These suggestions have met with considerable opposition. Some critics argue that the Lex Mercatoria in a myth without substance because it is incapable of generating a coherent body of rules that would make it unnecessary to have recourse to either domestic or international law. Considerable talent and ingenuity have been displayed in countless publications. To pursue the endless doctrinal debate would, therefore, be an uninviting and unnecessary task. Instead, this Article proposes approaching the subject in less glamorous fashion by relating it to the type of concrete situations that may confront draftsmen of state contracts in search of predictable and effective methods of conflict avoidance.
In this respect, it can never be emphasized too strongly that, for the draftsmen, conflict avoidance cannot be confined to the selection of the applicable law. The primary objective of the choice of law process is to achieve tangible results under the law, or laws, that ultimately may be chosen. In other words, the selection of the applicable law must be preceded by thorough comparative analysis of the substantive rules that may be found in each of the legal systems under consideration and with which the contract may finally be connected. To the extent that the options offered to the draftsmen would not be limited to either domestic or international law and would also include the Lex Mercatoria, the drafters would need to ascertain, as a matter of priority, whether the substantive rules of the Lex Mercatoria offer viable alternatives to the other systems that may be part of the equation. Difficult as it may be, the investigation cannot be dispensed with, lest the selection of the Lex Mercatoria becomes an adventure in uncharted waters.
A survey of stipulations found in state contracts shows that not all draftsmen are equally responsive to the challenge and that those who may have succumbed to the appeal of the Lex Mercatoria may, in effect if not intent, have surrendered the ultimate determination of substantive rules to transnational arbitrators whose views on the subject may not always be as concordant as might have been expected.
About the Author
Georges R. Delaume. Counsel to Curtis, Mallet-Prevost, Colt & Mosle.
Citation
63 Tul. L. Rev. 575 (1989)