The lex mercatoria, otherwise known as the law merchant, has been the legal framework for international commerce since the Middle Ages.  As originally developed, the lex mercatoria was a body of international trading principles used by merchants to resolve international commercial disputes outside the dictates of official courts.  It was built upon the notion of uniform international trading rules meant to facilitate foreign commerce by avoiding conflicts between varying local customs laws.  The general principles included the obligation of good faith, reciprocity of obligations, non-discrimination between merchants from different localities, and negotiated dispute settlement.  Obligations were generally embodied in contracts, which became standardized over time, and disputes were resolved through independent merchants’ courts.  Dispute resolution was intended to be expeditious and cost-effective, resulting in a fair and equitable resolution.  The lex mercatoria also involved rules specific to the documentation of particular aspects of commercial transactions, including letters of credit, bills of exchange and other negotiable instruments. 

As nation states developed, the lex mercatoria gradually worked its way into state commercial law regimes in Europe, including English law.  Blackstone’s commentaries on the lex mercatoria continue to be cited by the Supreme Court of the United States in deciding issues relating to customary international law.  As recently as 2004, the Supreme Court in Sosa v. Alvarez-Machain, 542 U.S. 692, 715 (2004), in deciding the scope of the Alien Tort Statute, relied on Blackstone’s view of the lex mercatorio as one of the central components of the law of nations.  

Prior to the Supreme Court’s decision in Erie R. Co. v. Tompkins, 304 U.S. 64 (1938), which ended the development of the general federal common law, the Supreme Court had also embraced the lex mercatorio as part of federal commercial law as set forth under Swift v. Tyson, 16 Pet. 1, 10 L.Ed. 865 (1842).  Under Swift, federal courts applied the general principles of international commercial law embodied in the lex mercatoria to commercial cases, much in the same way that English courts had incorporated the lex mercatoria into the development of English commercial law.  Despite Erie, the lex mercatoria has continued to be applied in commercial areas where the federal courts have federal question jurisdiction.  For example, in Clearfield Trust Co. v. United States, 318 U.S. 363 (1943), the Supreme Court held that the law merchant was applicable to questions concerning the commercial paper of the United States because this issue raised questions of federal law. 

At the state level, courts across the United States continue to consider the law merchant in many commercial disputes subject to the Uniform Commercial Code (UCC), which was influenced significantly by the customs derived from the lex mercatoria.  In particular, the UCC states that “unless displaced by the particular provisions of the [Code], the principles of law and equity, including the law merchant . . . shall supplement its provisions.”

While the lex mercatoria was traditionally a matter of customary international law, the last hundred years has seen a significant rise in efforts to codify international commercial law.  In many specific areas of commercial law, the lex mercatoria has already been embodied in a number of international agreements and standards.Existing conventions drawing from the lex mercatoria include, for example, the UN Convention on Contracts for the International Sale of Goods.  The CISG was developed by UNCITRAL and provides substantive rules of decision for contract disputes arising from the international sale of goods.  In addition, UNIDROIT has had significant success in promoting its http://www.unidroit.org/english/principles/contracts/main.htm.

Because much of the traditional lex mercatoria remains customary law, ascertaining its scope and rules of decision can be difficult and has raised significant debate as to whether lex mercatoria can be characterized as binding law at all.  To combat this problem, the University of Cologne has collected existing rules of lex mercatoria into the TransLex Principles, available at http://www.trans-lex.org/principles.  The availability of a central resource for materials on the lex mercatoria may be especially important in light of the use of the law merchant as the governing law in many international commercial arbitration proceedings.  For example, arbitrators may apply the law merchant as default rules in the absence of a specific choice of law provision.  Similarly, arbitration before the International Chamber of Commerce may involve litigation of issues under the lex mercatoria, or application of the UNIDROIT Principles rather than domestic commercial laws. 

Looking to the future of the lex mercatoria in international commercial litigation, the growing number of instruments embodying the lex mercatoria, and the effort to consolidate resources in this regard, suggests that the law merchant will continue to evolve as a body of international law with continuing application in federal and state courts in the United States.