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DALHUISEN ON TRANSNATIONAL
COMPARATIVE, COMMERCIAL,
FINANCIAL AND TRADE LAW
VOLUME 1
This is the sixth edition of the leading work on transnational and comparative com-
mercial and financial law, covering a wide range of complex topics in the modern law
of international commerce, finance and trade. As a guide for students and practitioners
it has proven to be unrivalled. The work is divided into three volumes, each of which
can be used independently or as part of the complete work.
Volume one covers the roots and foundations of private law; the different orien-
tations and structure of civil and common law; the concept, forces, and theoretical
basis of the transnationalisation of the law in the professional sphere; the autonomous
sources of the new law merchant or modern lex mercatoria, its largely finance-driven
impulses; and its relationship to domestic public policy and public order requirements.
This new edition adds a chapter on the transnationalisation of commercial, financial
and foreign investment dispute resolution. It explains the more limited nature of inter-
national dispute resolution through arbitration as compared to dispute resolution in
the ordinary courts, the powers of international arbitrators, the expansion of these
powers when they speak for the public interest, and the need in that case for proper
supervision.
All three volumes may be purchased separately or as part of a single set.
ii
Dalhuisen on Transnational
­Comparative, Commercial, Financial
and Trade Law Volume 1
Sixth Edition

The Transnationalisation of Commercial and Financial Law and


of Commercial, Financial and Investment Dispute Resolution.
The New Lex Mercatoria and its Sources

Jan Dalhuisen
Professor of Law, Dickson Poon School of Law
King’s College London
Miranda Chair in Transnational Financial Law
Catholic University Lisbon
Visiting Professor UC Berkeley
Corresponding Member
Royal Netherlands Academy of Arts and Sciences
Member New York Bar
Former ICSID Arbitrator

OXFORD AND PORTLAND, OREGON


2016
Hart Publishing
An imprint of Bloomsbury Publishing plc

Hart Publishing Ltd Bloomsbury Publishing Plc


Kemp House 50 Bedford Square
Chawley Park London
Cumnor Hill WC1B 3DP
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HART PUBLISHING, the Hart/Stag logo, BLOOMSBURY and the


Diana logo are trademarks of Bloomsbury Publishing Plc

First published 2016

© Jan Dalhuisen

Jan Dalhuisen has asserted his right under the Copyright, Designs and Patents Act 1988
to be identified as Author of this work.

All rights reserved. No part of this publication may be reproduced or transmitted in any form or by
any means, electronic or mechanical, including photocopying, recording, or any information storage
or retrieval system, without prior permission in writing from the publishers.

While every care has been taken to ensure the accuracy of this work, no responsibility for loss or
damage occasioned to any person acting or refraining from action as a result of any statement
in it can be accepted by the authors, editors or publishers.

Crown copyright material is reproduced with the permission of the Controller of HMSO and the
Queen’s Printer for Scotland. Any European material reproduced from EUR-lex, the official
European Communities legislation website, is European Communities copyright.

British Library Cataloguing-in-Publication Data


A catalogue record for this book is available from the British Library.

ISBN: HB: 978-1-50990-700-7


ePDF: 978-1-50990-745-8
ePub: 978-1-50990-744-1

Library of Congress Cataloging-in-Publication Data

Names: Dalhuisen, J. H. (Jan Hendrik), author.

Title: Dalhuisen on transnational comparative, commercial, financial and trade law / Jan Dalhuisen.

Other titles: Transnational comparative, commercial, financial, and trade law

Description: Sixth edition. | Portland, OR : Hart Publishing, 2016– | Includes bibliographical references and index.
Identifiers: LCCN 2016010061 (print) | LCCN 2016010790 (ebook) | ISBN 9781509907007 (hardback : alk.
paper) | ISBN 9781509907441 (Epub)

Subjects: LCSH: Commercial law. | Export sales contracts. | International finance—Law and legislation. | Foreign
trade regulation.

Classification: LCC K1005 .D35 2016 (print) | LCC K1005 (ebook) | DDC 346.07—dc23

LC record available at http://lccn.loc.gov/2016010061

Typeset by Compuscript Ltd, Shannon


To my Teachers and my Students
vi
Table of Contents

Table of Casesxix
Table of Legislation and Related Documents xxix

Chapter 1: The Transnationalisation of Commercial and Financial Law.


The New Lex Mercatoria Concerning Professional Dealings and its Sources1
Part I The Emergence of the Modern Lex Mercatoria, its Method,
Structure and Antecedents. Civil and Common Law Thinking
1.1 Introduction 1
1.1.1 The Place and Evolution of Modern Commercial
and Financial Law in Civil and Common Law.
The Concept of Transnationalisation 1
1.1.2 Civil Law in Commerce and Finance 5
1.1.3 The Common Law in Commerce and Finance 16
1.1.4 The Transnationalisation of Commercial and
Financial Law: Common or Civil Law Approach?
Methodology and Definition. The Question of the
Public Interest and its Representation at the
Transnational Level 21
1.1.5 The Coverage of Domestic and Transnational
Commercial and Financial Law 29
1.1.6 Legal Dynamism as a Key Notion in Transnational
Commercial and Financial Law. Law as a Dynamic
Concept in Modern Contract and Movable Property 32
1.1.7 Legal Pragmatism at the Transnational Level. Notions
of Certainty, Finality and Predictability. The Need to
Find Structure, Not System 46
1.1.8 Social, Economic, Intellectual or Democratic Legitimacy 52
1.1.9 The Traditional Civil and Common Law Notions of
Commercial Law. The Notion of Commerciality 53
1.1.10 Old and New Commercial and Financial Law.
Transnational Notion of Professionality, a Separate
Legal Order for Professional Dealings 60
1.1.11 The Role and Status of International
Commercial Arbitration 65
1.1.12 International Arbitration and the Role of Ordinary
Commercial Courts Compared. Need for an
International Commercial Court? 70
1.1.13 Structure of this Volume 74
viii Table of Contents

1.2 The Origin of Civil Law. Its Traditional Approach to Law


Formation and to the Operation of Private Law. Effect on
Commercial and Financial Law 76
1.2.1 Introduction 76
1.2.2 The Early Developments of Private Law on the
European Continent. Roman Law 78
1.2.3 Classical Roman Law and the Corpus Iuris Civilis 81
1.2.4 The Revival of Roman Law in Western Europe:
The Ius Commune 86
1.2.5 The Ius Commune and its Relationship to Local Law,
Including Newer Commercial Law 89
1.2.6 The Early Evolution of the Notion of Natural
Law in Europe 93
1.2.7 The Emergence of the Secular Natural Law School:
Grotius’s De Iure Belli ac Pacis, its Approach and Impact 96
1.2.8 The Status of State Law in the Philosophies of Grotius,
Hobbes, Locke, Kant and Hegel. The Impact of the
Age of Enlightenment and the Road to Codification
of Private Law in France 101
1.2.9 The German Historical and Romantic Schools.
German Idealism and the Road to Private Law
Codification in Germany 106
1.2.10 The Civil Law National Codifications and their Coverage 116
1.2.11 Nationalism and System Thinking. The Question
of the Continued Relevance of the Civil Law
Codification Idea 119
1.2.12 Modern Policy Arguments in Favour of a Statist and
Static Attitude Towards the Formation of Private Law.
Deficiency in System Thinking. Misunderstandings
Concerning Democratic Legitimacy and Certainty 125
1.2.13 Interpretation and System Thinking in Civil Law:
Begriffs- and Interessenjurisprudenz, Freirechtslehre and
Wertungsjurisprudenz in Germany. Modern Hermeneutics
and the Role of Precedent in Civil Law 128
1.3 The Origin and Evolution of the Common Law. Its Approach
to Law Formation and to the Operation of Private Law 135
1.3.1 Common Law and Equity 135
1.3.2 The Common Law Approach to Scholarship 141
1.3.3 The Common Law Approach to Precedent, Legislation
or Codification, and Statutory Interpretation 143
1.3.4 Intellectualisation and Conceptualisation in Common
Law. Modern American Academic Attitudes
Towards the Law and its Development:
Legal Formalism and Realism 151
Table of Contents ix

1.3.5 Post-realism or Legal Functionalism in the US:


The ‘Law and …’ Movements 157
1.3.6 The Progress So Far 162
1.3.7 The Quest for Modernity, the Problems in the
Post-modern Era. The Attitude to and Effects on
Law Formation and Operation 169
1.4 The Sources of Law in the Civil and Common Law Tradition.
The Approach in Transnational Private Law and the Hierarchy
of Sources of Law and their Norms in the Modern Lex Mercatoria 175
1.4.1 Statutory and Other Sources of Law. Nationalism
and System Thinking in Civil and Common Law 175
1.4.2 Fact and Law Finding in Civil and Common Law 180
1.4.3 The Revival of the Traditional Sources of Law Through
Liberal Interpretation Techniques in Civil Law.
The Changing Status and Role of Precedent 185
1.4.4 Survival of Transnational Legal Sources in Commercial
Law. EU and Public International Law Attitudes 189
1.4.5 Autonomous Legal Sources: Fundamental Principle 193
1.4.6 Autonomous Legal Sources: General Principle 199
1.4.7 Autonomous Legal Sources: Custom and Practices 201
1.4.8 The Competition Between Custom and Statutory or
Treaty Law. The Issue of Desuetude and the Relation
to the Good Faith Notion in Contract 209
1.4.9 Autonomous Legal Sources: Party Autonomy 211
1.4.10 Autonomous Legal Sources: Treaty Law 212
1.4.11 Uniform (Treaty) Law and Private International Law 215
1.4.12 Domestic Laws as Autonomous Residual Source of
Transnational Law 217
1.4.13 The Hierarchy of the Sources of Law in Transnational
Commercial and Financial Law or the Modern
Lex Mercatoria. The Meaning of the Choice of a
Domestic Law by the Parties 217
1.4.14 Treaty Law and its Own Concept of its Place Among
the Other Sources of Private Law 223
1.4.15 The Concept of Natural Law and the Legal Status
and Force of Fundamental and General Principle in
the Modern Lex Mercatoria 224
1.4.16 An End to the Confining Views of Legal Positivism,
Formalism, and Nationalism in the Professional Sphere 229
1.4.17 Dispute Prevention or Dispute Resolution? Law in
Action or Law in Litigation 234
1.4.18 The Development of the Modern Lex Mercatoria and
Role of National Courts and of International
Commercial Arbitration 236
x Table of Contents

1.4.19 Agents of International Convergence and Harmonisation:


The Role of UNIDROIT, UNCITRAL, the ICC,
The Hague Conference, the EU, and the American Law
Institute and Commissioners on Uniform State
Laws in the US 240
1.4.20 EU Attempts at Harmonising Private Law 243
1.5 Cultural, Sociological and Economic Undercurrents in the
Formation of Transnational Commercial and Financial Law
(Modern Lex Mercatoria). Different Legal Orders, their
Manifestation, and the Competition Between them 254
1.5.1 The Concept of Legal Orders, their Manifestation 254
1.5.2 Law as Cultural Manifestation 258
1.5.3 Law as a Political Organisational Tool. The Importance
of Diversity, Group Autonomy, Democracy,
Rule of Law and Human Rights 262
1.5.4 The American Experiences and the Effect
on Law Formation 265
1.5.5 The Revival of Legal Universalism in
Professional Private Law 268
1.5.6 Sociological and Economic Considerations in the Law 271
1.5.7 The Formation of Non-Statist Law in Modern Social
and Economic Theory 277
1.5.8 The Competition Between Transnational Law and
Mandatory State Laws or National Public Policies and
Public Order Requirements. The International
Minimum Standards 279
1.5.9 The Operation of Different Legal Orders in Private Law:
Evolution of a US Federal Commercial Law, of Transnational
Private Law Concepts in the EU, and of International
Human Rights Law in the Council of Europe (European
Court of Human Rights) 286
1.5.10 The International Commercial and Financial Legal Order:
The Role of Legal Theory, Legal History,
and Comparative Law 291
Part II The Nature, Status and Function of
Private International Law
2.1 Modern Private International Law 297
2.1.1 The Underlying Concept of Modern Private
International Law 297
2.1.2 Earlier Approaches 304
2.1.3 Drawbacks of the Modern Conflicts Rules 305
2.2 The Modern European and US Approaches to Conflict of Laws 312
2.2.1 Refinement of the European Model of Private
International Law 312
Table of Contents xi

2.2.2 Developments in the US 313


2.2.3 The Various Modern US Conflicts Theories 317
2.2.4 The European Approach: Exception Clauses, Reasonable
and Fair Solutions in the Dutch Proposals 319
2.2.5 The Role of Practitioners. Emphasis on the Facts Rather
than on the Rules: The Nature of the Relationship of
the Parties and the Nature of the Transaction Distinguished.
The Effects of Transnationalisation 323
2.2.6 The Issue of Public Policy or Governmental Interests
and its Impact. The Notion of Comity and its
Application. Competition Between Transnational
and State Laws Revisited 326
2.2.7 States as Counterparties de Iure Imperii 332
2.2.8 Practical Issues Concerning Conflicting Public Policies:
Effect on the Lex Mercatoria and the Importance of the
Notion of Forum non Conveniens 335
2.2.9 Party Autonomy and Contractual Choice of Law 340
2.3 Interaction of Private International Law and Uniform Law 343
2.3.1 Private International Law and the Application
of Uniform Law 343
2.3.2 The Situation with Regard to EU Directives of
a Private Law Nature 344
Part III The Substance and Operation of Transnational Commercial
and Financial Law or the Modern Lex Mercatoria
3.1 The Lex Mercatoria, Interrelation with Private International Law,
Legitimation349
3.1.1 The Background to the Revival of the Lex Mercatoria 349
3.1.2 The Concept of the Modern Lex Mercatoria as a
Hierarchy of Norms 353
3.1.3 The Major Protagonists of the Lex Mercatoria and
their Views: Legitimation 361
3.2 The Hierarchy of Norms from Different Legal Sources in the
Modern Lex Mercatoria: Elaboration of the Positive Law 363
3.2.1 Fundamental Legal Principle and Implementing Custom
Support. Transnational Rules of Contract Formation
and the Normative Interpretation Technique 363
3.2.2 Fundamental Principle and Implementing Custom
Support. The Notion of Transnational Ownership.
A Dynamic System of Modern Movable Proprietary
Rights368
3.2.3 Eurobonds, Trade Receivables and Transnational
Proprietary Coverage. Fundamental Principle and
Implementing Custom Support 373
xii Table of Contents

3.2.4 Fundamental Principle and Implementing


Custom Support in Procedural Matters 376
3.2.5 Mandatory Custom and Practices. The ISDA
Master Agreements 377
3.2.6 Mandatory Uniform Treaty Law, Mandatory General
Principle, Party Autonomy, Directory Custom or Trade
Practices, Directory Uniform Treaty Law and General
Legal Principles 380
3.2.7 Domestic Laws, Private International Law: Mandatory
Provisions and Public Policy or Regulatory Issues 384
3.3 Operation of the Lex Mercatoria. Objections 386
3.3.1 Operation of the Lex Mercatoria and Direct References to it 386
3.3.2 Objections to the Lex Mercatoria Approach 391
3.3.3 Application and Enforcement of the Lex Mercatoria 394

Chapter 2: The Transnationalisation of Commercial, Financial


and Investment Dispute Resolution 397
Part I International Commercial Arbitration
1.1 Introduction 397
1.1.1 The Problems and Challenges of Dispute Resolution 397
1.1.2 Arbitration and its Nature 401
1.1.3 The Importance of Defining the Dispute in Arbitrations
and the Special Role of the Pleadings of the Parties.
Law as Fact 402
1.1.4 Other Forms of Dispute Resolution: Experts Decisions,
Amiable Compositeurs, Shortened Proceedings,
Mediation and ADR 404
1.1.5 Institutional and Ad Hoc Arbitrations 406
1.1.6 The International Dimension 408
1.1.7 When is a Dispute an International Commercial
Dispute? The Operation of the International Commercial
and Financial Legal Order. International Commercial
Arbitrations and the Difference from a Domestic
Commercial Arbitration 410
1.1.8 The Notion of the Seat in International Arbitrations
and the Delocalisation Model 413
1.1.9 The Major Consequences of Delocalisation. Attitude
of the New York Convention and the Model Law.
The View of Article 16(4) of the LCIA Rules (2014) 416
1.1.10 Powers, Status and Activity of International
Commercial Arbitrators. Areas of Arbitral Autonomy.
The Applicable Arbitral Law 419
1.1.11 Is International Arbitration Judicial or Contractual?
Is it Adversarial or Inquisitive? 422
Table of Contents xiii

1.1.12 Legitimacy, Transparency and Accountability.


Independence and Impartiality. Supervision of
International Commercial Arbitration and the
Operation of an International
Commercial Court 426
1.1.13 International Moot Competitions, Modern
Literature, and the Concept and Meaning of
International Arbitration 429
1.2 The Process of Legal Transnationalisation. The Operation
of the Modern Lex Mercatoria. Transnational and Domestic
Public Policy Considerations in International Arbitrations 434
1.2.1 The Transnationalisation of the Arbitration Clause
and of the Law Applicable to the Arbitral Process.
The Residual Role of the Arbitration Law of the Seat 434
1.2.2 The Transnationalisation of the Applicable Substantive
Law. The Modern Lex Mercatoria as the Substantive Law.
Sources of Law and their Hierarchy. Differences Between
International Arbitrations and Proceedings in the
Ordinary Courts 437
1.2.3 The Representation of the Public Interest at the
Transnational Level. International Minimum Standards
and the Relationship to Local Policies and Values 442
1.2.4 Public Order and Parallel Legal Orders 444
1.2.5  Ius Curia Novit? Do International Arbitrators Know
the Law and Apply it Autonomously? 446
1.2.6 Autonomous Private Law Trends in Transnational Law 449
1.2.7 Principles of Transnational Contract and Movable
Property Law 451
1.3 International Arbitration: Initial Steps and Complications 453
1.3.1 Introduction. Submission and Arbitration Agreements.
The Requirement of a Writing. What does
the Arbitration Agreement Cover and Who can be
Party to the Arbitration? 453
1.3.2 When is there a Dispute? Statute of Limitations 456
1.3.3 Ousting of the Ordinary Courts. Article II New York
Convention458
1.3.4 Interface of International Arbitration and the Ordinary
Courts in the EU Under Regulation 44/2001 (Brussels I)
and the 2012 Amendments 460
1.3.5 Establishment of the Arbitral Tribunal. Selecting
Arbitrators, Qualities. Arbitrator Fees 461
1.3.6 Challenges of Arbitrators 464
1.3.7 The Jurisdiction of International Arbitrators and
Challenges to Jurisdiction 465
1.3.8 The Issue of Arbitrability in International Arbitrations 466
xiv Table of Contents

1.3.9 Other Early Incidents: Preliminary Issues and Protections 467


1.3.10 Procedural Order No 1 469
1.3.11 Terms of Reference? 470
1.3.12 The Status of Early Decisions 470
1.4 The Conduct of the Proceedings and the Award 471
1.4.1 Pleadings and Discovery 471
1.4.2 Witnesses and Hearing 472
1.4.3 The Conduct of Multi-party Arbitrations.
Class Arbitrations? 474
1.4.4 The Award 475
1.4.5 Effect of the Award and Potential Impact on Third Parties 477
1.5 The Role of National Courts 478
1.5.1 Support 478
1.5.2 Supervision and Challenges 481
1.6 The New York Convention. International Recognition
and Enforcement of the Awards 482
1.6.1 The Coverage of the New York Convention 482
1.6.2 Recognition and Enforcement. Article V of the New York
Convention483
Part II International Financial Arbitration
2.1 Introduction 487
2.1.1 Special Problems in International Financial Arbitrations 487
2.1.2 Special Arbitration Needs in International Finance 489
2.2 Building Blocks of Private Law in International Finance.
The Applicable Law and its Transnationalisation 494
2.2.1 Assignments and Securitisations 494
2.2.2 Set-off and Netting 498
2.2.3 Secured Transactions, Finance Sales and
Related Structures 504
2.2.4 Investment Securities and their Modern Holding in
Electronic Entitlement Systems 513
2.2.5 Segregation, Ranking and Constructive Trusts 518
2.2.6 Transactional and Payment Finality 521
2.2.7 How do We Transfer an International
Commercial and Related Cash-Flow and How do
We Rank Proprietary Interest Holders Transnationally? 525
2.3 Public Policy Concerning Financial Instruments. Remedies 527
2.3.1 Public Interest in Financial Products 527
2.3.2 Conflicts of Public Policy. The Jurisdiction to Prescribe,
International Minimum Standards and the Spokesperson’s
Function in Respect of the Public Interest 534
2.3.3 The Impact of Insolvency Laws 537
2.4 Complications in International Financial Arbitrations 543
Table of Contents xv

2.4.1 The Reasoning of International Financial Arbitrators


and their Powers to Intervene in the Dispute 543
2.4.2 Is there a Need for New Treaty Law and for
Supervision of International Financial Arbitrations by an
International Commercial Court to Stabilise International
Financial Arbitration and Enhance its Credibility? 545
2.4.3 International Financial Arbitration and the Position
of Ordinary Judges Compared 546
2.5 The Emergence of P.R.I.M.E. 550
2.5.1 Special Needs of International Financial Arbitration.
The Emergence of P.R.I.M.E. 550
2.5.2 The Applicable Law Clause in the P.R.I.M.E. Rules 551
2.5.3 P.R.I.M.E. Preliminary Issues 552
2.5.4 P.R.I.M.E. Status, Powers and Operation of Arbitrators.
Arbitrability553
2.5.5 P.R.I.M.E. Procedural Issues 554
2.5.6 P.R.I.M.E. Contractual Issues 554
2.5.7 P.R.I.M.E. Proprietary Issues 555
2.5.8 P.R.I.M.E. Regulatory Issues 555
2.5.9 P.R.I.M.E. Taxation Issues 555
2.5.10 P.R.I.M.E. Bankruptcy Issues 556
2.5.11 P.R.I.M.E. Applicable Law Issues and Parties’
Choice of Law 556
2.5.12 P.R.I.M.E. Legitimacy of the Award. Supervision,
Recognition and Enforcement Issues 557
Part III Foreign Investment Arbitration
3.1 Introduction 559
3.1.1 Proceedings Against States 559
3.1.2 Foreign Investments and their Protection.
Host Country Investment Statutes and
Investment Agreements. The Calvo Doctrine.
The Washington Convention and BITs 561
3.1.3 Bilateral Investment Treaties 565
3.1.4 The Concept of Foreign Investment and
Foreign Investor. The Jurisdictional Issue 567
3.1.5 The Complications Deriving from the Nature of the
International Flows, the Overlap Between Trade and
Foreign Investments Laws. Different Dispute
Resolution Techniques 568
3.1.6 Powers of Foreign Investment Arbitrators 570
3.1.7 The Supervision of Foreign Investment Arbitrators.
Annulment Proceedings Compared 571
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