Evolution of Law Merchant
The lex mercatoria was originally a body of rules and principles laid down by merchants to regulate their dealings. It consisted of rules and customs common to merchants and traders in Europe, with some local variation. It originated from the need for quick and effective jurisdiction, administered by specialised courts. The guiding spirit of the merchant law was that it ought to derive from commercial practice, respond to the needs of the merchants, and be comprehensible and acceptable to the merchants who submitted to it. International commercial law today owes some of its fundamental principles to the lex mercatoria. This includes choice of arbitration institutions, procedures, applicable law and arbitrators, and the goal to reflect customs, usage and good practice among the parties.
Goods and services flowed freely during the medieval merchant law, thus generating more wealth for all involved. It is debated whether the law was uniform in nature, was spontaneous as a method of dispute resolution, or applied equally to everyone who subordinated to it. The lex mercatoria was also a means for local communities to protect their own markets. Local kings or lords extracted taxes and set trade restrictions. In 1303 Edward I issued the Carta Mercatoria, a charter to foreign merchants in England, which guaranteed them freedom to trade, with certain protections and exemption under the law. Although the charter was revoked by Edward II, due to complaints by English merchants, foreign merchants retained most of their rights in practice, but these would vary widely with the march of time, events and changes to state policy.
Lex mercatoria (from the Latin for “merchant law”), often referred to as “the Law Merchant” in English, is the body of commercial law used by merchants throughout Europe during the medieval period. It evolved similar to English common law as a system of custom and best practice, which was enforced through a system of merchant courts along the main trade routes. It functioned as the international law of commerce. It emphasised contractual freedom and alienability of property, while shunning legal technicalities and deciding cases ex aequo et bono. A distinct feature was the reliance by merchants on a legal system developed and administered by them. States or local authorities seldom interfered, and did not interfere a lot in internal domestic trade. Under lex mercatoria trade flourished and states took in large amounts of taxation.
In the last years new theories had changed the understanding of this medieval treatise considering it as proposal for legal reform or a document used for instructional purposes. These theories consider that the treatise cannot be described as a body of laws applicable in its time, but the desire of a legal scholar to improve and facilitate the litigation between merchants. The text is composed by 21 sections and an annex. The sections described procedural matters such as the presence of witnesses and the relation between this body of law and common law. It has been considered as a false statement to define this as a system exclusively based in custom, when there are structures and elements from the existent legal system, such as Ordinances and even concepts proper of the Romano-canonical procedure.
The lex mercatoria was the product of customs and practices among traders, and could be enforced through the local courts. However, the merchants needed to solve their disputes rapidly, sometimes on the hour, with the least costs and by the most efficient means. Public courts did not provide this. A trial before the courts would delay their business, and that meant losing money. The lex mercatoria provided quick and effective justice. This was possible through informal proceedings, with liberal procedural rules. The lex mercatoria rendered proportionate judgements over the merchants’ disputes, in light of “fair price”, good commerce, and equity.
Judges were chosen according to their commercial background and practical knowledge. Their reputation rested upon their perceived expertise in merchant trade and their fair-mindedness. Gradually, a professional judiciary developed through the merchant judges. Their skills and reputation would however still rely upon practical knowledge of merchant practice. These characteristics serve as important measures in the appointment of international commercial arbitrators today such as the European Commissioner for Trade, Phil Hogan holds the present post.
The lex mercatoria owed its origin to the fact that the civil law was not sufficiently responsive to the growing demands of commerce, as well as to the fact that trade in pre-medieval times was practically in the hands of those who might be termed cosmopolitan merchants, who wanted a prompt and effective jurisdiction. It was administered for the most part in special courts, such as those of the guilds in Italy, or the fair courts of Germany and France, or as in England, in courts of the Staple or Piepowder.
The lex mercatoria was composed of such usages and customs as were common to merchants and traders in all parts of Europe, varied slightly in different localities by special peculiarities. Less procedural formality meant speedier dispensation of justice, particularly when it came to documentation and proof. Out of practical need, the medieval lex mercatoria originated the “writing obligatory”. By this, creditors could freely transfer the debts owed to them. The “writing obligatory” displaced the need for more complex forms of proof, as it was valid as a proof of debt, without further proof of; transfer of the debt; powers of attorney; or a formal bargain for sale. The lex mercatoria also strengthened the concept of party autonomy: whatever the rules of the lex mercatoria were, the parties were always free to choose whether to take a case to court, what evidence to submit and which law to apply.
Merchant law declined as a cosmopolitan and international system of merchant justice towards the end of medieval times. This was to a large extent due to the adoption of national commercial law codes. It was also connected with an increasing modification of local customs to protect the interests of local merchants. The result of the replacement of lex mercatoria codes with national governed codes was the loss of autonomy of merchant tribunals to state courts. The main reason for this development was the protection of state interests.
The nationalisation of the lex mercatoria did not neglect the practises of merchants or their trans-border trade. Some institutions continued to function, and state judges also were appointed for their merchant expertise, just as modern commercial arbitrators. The laws of the merchants were not eradicated, but simply codified. National codes built on the principles laid down by trade commercial practise and to a large extent they embodied lex mercatoria substantial rules. This was for example the case in France. The Code Commercial was issued in 1807, where lex mercatoria rules were preserved to govern formation, performance and termination of contracts. In effect, the nation states reconstituted the lex mercatoria in their image.