WEEK 1
Upon completion of lecture 1, you will:
- Understand the basic differences between code-based civil law and caselaw based common law
- Understand the differences between civil and commercial law
- Have insight in the sources of commercial law and their relationship
- Have a basic knowledge of the main contract law doctrines, including conclusion, construction,
consideration and the role of good faith
Upon completion of lecture 2, you will:
- Have a basic knowledge and an understanding of Private International law and the distinction
between issues related to the choice of law and jurisdiction;
- Have an understanding of the following topics under Brussels I bis Regulation: defendants’ domicile,
choice of court clauses, litigation in contractual matters;
- Have an understanding of the following topics under Rome I Regulation: party autonomy/choice of
law, applicable law in contractual obligations in the absence of choice, overriding mandatory rules
and public policy;
- Be able to apply the geographical scope of the CISG;
- Be able to understand and distinguish between direct ((Art. 1(1)(a) CISG) and indirect application of
the CISG ((Art. 1(1)(b) CISG);
- Have a basic understanding of international arbitration and will be able to identify the features of
international arbitration as opposed to national court litigation;
- Be able to understand, comment on and apply choice of law, choice of forum, and arbitration clauses
in cases involving commercial contracting.
,LECTURE 1 Willem H. van Boom
INTRODUCTION
Throughout the coming weeks we will deal with a number of topics which are related to international
commerce. In the more traditional sense, commerce is trading goods (mostly cross-border). We will be
facing questions such as: is this national law? Is this international law? Is there a treaty involved? What
law/jurisdiction is applicable? How do jurisdictions compare? The jurisdiction which we will mostly deal
with are of English ‘Common Law’, but also a bit of American ‘Common Law’, compared to main civil
law jurisdictions (primarily Germany and France). It makes sense to compare these jurisdictions from
both a legal and economic view, as the contrasts are quite substantial between the three and they are
dominant in international trade. It therefore also builds on your knowledge of your own jurisdiction
(contract, property and securities-law).
It is recommended to have a hard copy of the ‘Selected Codes and Statutes’-document.
WHAT IS COMMERCIAL LAW?
About the legal aspects of commerce: trading goods. If you imagine the globe to have one universal
jurisdiction, we would have no problem in ascertaining which law applies to a contract, or which courts
would be competent. However, we don’t h ave a universal jurisdiction, therefore it is important to
establish which law applies, what the law says and to determine what court is competent to deal with a
conflict. This is private international law.
It is the law of commerce; it is the law of trading goods and all that surrounds trading goods (e.g.
international and domestic sales law, transportation law). We also need carriers, finance and banks in
commercial transactions. Commercial law is therefore also about credit; buying on credit, selling on
credit and ensuring that whatever is sold on credit remains yours until invoice is paid (‘retention of title’).
This relates back to the security side to commerce.
WHAT ARE THE INTERESTS OF MERCHANTS?
Lex mercatoria (‘merchant law’)
Merchant law is a bit of an illusive concept. Academics and courts love to use phrases ‘from the law
merchant that…’, but what is it exactly. Some say it does not exist and others believe it does. Originally
speaking, the lex mercatoria did exist in the Middle Ages. Back then ‘Nation States’ did not yet really
exist. Therefore, the boundaries between nations were quite blurry and most did not have a centralized
power or civil code. So, what about states with a decentralized power; if each of them has its own rules on
commerce, you end up with a mess as it hampers trade. The lex mercatoria provides supranational rules
on commerce. It is sometimes also referred to as ‘customary law’ (= common law). If a court applies
customs even though they are not written in statutes, we can say it transforms from custom into
customary law. You will not find these laws in rulebooks, but in decisions by courts. One might also see
common law as self-regulation, as its binding through social sanctioning.
The counterweight to the common law system is, of course, the rise of the nation state, which goes hand
in hand with codification and centralized powers. This gave rise to civil law. Within Europe, many states
adopted civil law thanks to Napoleon.
Commercial law facilitates cross border sale and purchase of goods. It is mostly about commerce in the
material world, which refers to the exchange of tangible moveable objects for price in current monetary
value. It is also mostly private law; private commercial arrangements – so not dealing with e.g. WTO type
of trade issues. In short, it deals with sale of goods, contracts of carriage, contracts of insurance, raising
finance (payment instruments, security rights, financing contracts) and dispute settlement mechanisms.
,Dispute settlement often is done through arbitration. In most cases when a country allows arbitration as an
alternative method for merchants to settle their own conflicts, there will likely not be any court case
digests on many subjects, due to arbitration’s private adjudication.
What are the interests of merchants?
- Parties with equal bargaining power (either individually or through their trade associations) have a
preference for freedom of contract. However, there is always some type of inequality at stake. There
are no consumers involved in commercial law.
- Certainty and predictability in law. A contract is a contract; not having intervention in some cases and
no intervention in others, as that would create unpredictability.
- Contract interpretation: words and business sense over fairness. Also referred to as construction of
contracts. It’s always about the question whether we want to interpret it as the literal words of the
contracts or the underlying intentions of the contract.
- Recognition of customs and usages in specific branches (lex mercatoria).
- Efficient dispute settlement (i.e. arbitration) and enforcement of titles). If you have a title against a
debtor, there has to be some kind of international legal framework so the court can enforce these
titles.
- No hostility towards foreign law. (Parties can decide what state has jurisdiction and what laws
apply??).
The question is, does the law give this to international trade? It definitely aims to, but there are limits to
what the international order can supply.
What are the sources of commercial law?
Commercial contracts are governed by:
a. The contract itself.
b. Custom and usage.
c. The rules of national private law.
d. International instruments (e.g. CISG).
e. Transnational instruments (through contract or custom) (e.g. the ICC
inco? Terms).
, Civil law (code based)
Within civil law systems you will find legislation as the basis of law, conceptually. In practice, perhaps
the difference in outcome between civil law systems and common law systems might not be that big, but
the conceptual difference is huge. A civil law lawyer starts by asking himself how does the law work/how
does the Code deal with the issue? What is the system which the Code offers us? You will find that in
most of the Napoleonic countries, a Civil Code (relationship between ordinary citizens) and a
Commercial Code (deals with merchants and commerce) exists. From these Commercial Codes,
Company Law came into existence. In the Dutch legal system, the Civil Code and Commercial Code have
joined again.
Common law (case law based)
Common law is mostly based on the distinction between common law and equity, which is quite difficult
to translate. It started as two different branches of the law, with different courts: the courts of chancery
(equity). Law and equity are two different sources of law throughout the centuries, which have been
joined by abolishing the distinction between the court adjudication. The difference between law and
equity can be found throughout the common law jurisdiction. For a civil law lawyer, the concepts and
difference between them is quite difficult to understand. In essence they all work on precedent so that
case law and statute might amend the law.
The international and trans-national laws try to abridge the two (common law and civil law).
As mentioned before, The Netherlands has abolished the separation between the Civil Code and
Commercial Code. In Germany and France this separation still exists. Recently, countries have engaged
in De-codification, which is when the conceptual idea of having two major Codes, is slowly eroded. E.g.
the separation of insolvency law from the Commercial Code. English law cannot be compared to this as
Napoleon failed to conquer England.
The distinction between Commercial law and Civil law is important, because commercial codes usually
allow usages between traders to become part of their contract.
German commercial transactions
Merchant = person who carries on a commercial business.
Has specific rules on the sale of goods between merchants. There are common rules on sales contracts
in the civil code, and specific rules on sales contracts in the commercial code.
If one of two parties are a trader, then mercantile sales of goods rules will apply.
The law merchant has been acknowledged.
Commercial code first, and if it allows you to have customs and usages, then you can.
Multiple layers within one legal system
These layers can make it difficult to study e.g. German Mercantile Law, as you have to apply the Civil
Code (basis for contracts) and top of that you have to apply the principles of the Commercial Code where
relevant. Art. 366 German Code is about protecting a buyer in good faith against the fact that the seller
was not authorized to transfer ownership in the goods. Most jurisdictions have rules which determine that
if you buy in good faith for value and the seller is not authorized (e.g. he is not owner of the good), then
you’re protected against the fact that you did not know that the seller was not authorized and usually this
buyer still becomes the owner, even if the seller was not the owner.
