by Anna Rizzardi, Associate at Stephens Chu Dispute Resolution (Paris), French-qualified, with experience in complex commercial and investment arbitrations. Anna's LinkedIn profile: https://www.linkedin.com/in/anna-rizzardi-b2a143261/ 

The concept of lex mercatoria refers to bodies of rules that do not originate from State law but are “spontaneously referred to or elaborated in the framework of international trade”.[1] Some scholars claim that these principles foster international liberal commerce by counter-balancing State-driven interests and creating a neutral level playing field.[2]

The tariff hikes introduced by the Trump administration threaten this paradigm as they introduce barriers and unduly favour certain interests. In this context, can the lex mercatoria effectively mitigate such disruptive initiatives and realise the aforementioned objective of maintaining an international legal order? Our thesis is that lex mercatoria can theoretically provide an emergency exit from the economic uncertainty created by tariff hikes. Nevertheless, it is ultimately the arbitral tribunal’s choice to take that path and it may do so only within the limits set by the contractual terms and the parties’ reasonable expectations.

Applicability of the lex mercatoria

Disputes over who bears the risk of increased material costs and delays caused by new tariff policies will primarily turn on the contract terms and the applicable law. There is no doubt that lex mercatoria will apply where the parties have expressly agreed to it. But arbitral tribunals may also resort to it in the absence of a choice‑of‑law clause providing otherwise.[3] Even where the contract designates an applicable national law, transnational principles may still come into play if they are incorporated into the governing law, or if the lex arbitri requires tribunals to take them into account.[4] Furthermore, arbitrators may apply transnational principles to determine the validity of arbitration agreements,[5] as well as lex mercatoria principles as a means of supplementing the applicable law,[6] or in the case of multi-contracts disputes involving multiple conflicting applicable laws. 

The deficiencies of national laws

In fact, the recent waves of tariffs are expected to give rise to claims and defences based on (among others) force majeure, hardship, price review, and material adverse change clauses, which regulate the effects of unforeseeable events or significant changes on contractual performance.[7] Whether a contract contains such clauses or remains silent, it will be interpreted according to general legal doctrines under the applicable law.[8] However, the mere application of contractual terms or national default rules may be unsatisfactory. Contracts might not contain provisions that specifically concern tariff hikes simply because these were not reasonably foreseeable at the time of conclusion, and existing law and rules tend to interpret force majeure, hardship, and good faith narrowly[9] (and due to the individualized thresholds and approaches, solutions may be too fragmentated and contradictory[10]).

Lex mercatoria as a more adaptable framework

Instead, lex mercatoria principles can offer clearer and fairer solutions. Depending on the specifics of the case, arbitrators may refer to Incoterms or the CISG to allocate tariff costs to the seller or the buyer based, for instance, on the place of delivery.[11] This would simplify the dispute by avoiding complex conflict of law rules and providing predictable and harmonised solutions.

However, this would not remedy the economic harm introduced by tariffs: parties would still be forced to bear higher risks and costs, reevaluate their commercial relationships, revisit their supply chains and relocate their operations. Here is where other lex mercatoria principles may be of greater help to tribunals to readjust the contractual balance. Arbitrators may rely on Article 6.2.3 of the UNIDROIT principles or the duty to renegotiate the contract.[12] They may also apply lex mercatoria as a method, as proposed by Professor Gaillard: from a comparative law analysis based on parties’ intentions, arbitrators should be able to determine the most widely accepted rule, thus satisfying the parties’ reasonable expectations.[13]

How lex mercatoria has been applied in practice 

There are cases where, faced with exceptional political or economic circumstances, arbitral tribunals relied on lex mercatoria in creative ways. In the particular context of the US-Iran relationship, an Iran-US Claims Tribunal considered that fundamental political changes could constitute a ground to unilaterally terminate certain military contracts under the general principle of “rebus sic stantibus”, recognised by Article 62 of the Vienna Convention on the Law of the Treaties as well as many national legal systems.[14] In ICC Case No. 16369 of 2011, an arbitral tribunal held that the collapse in commodity prices constituted hardship, whose risk had to be shared by both the seller and the buyer, thus concluding that adaptation of the contractual price formula was the most reasonable and fair solution.[15] Other tribunals noted that economic sanctions such as prohibition on exports or imports may, in principle, constitute an impediment beyond the parties’ control under Article 79 of the CISG.[16]

Conclusion

Aggressive protectionist measures such as tariff increases can create significant economic disruption. Furthermore, ordinary market forces are not the main driver of such measures: rather, these often stem from individualised political agenda, which might prompt other actors to follow the lead through a spiral of protectionist measures. However, as described above, private international law may provide mechanisms, such as the UNIDROIT principles, the duty to renegotiate, and force majeure and hardship doctrines to mitigate or at least navigate such disruption.

[1] U Liukkunen, “Lex Mercatoria in International Arbitration” in: J Klabbers, T Piiparinen (eds), Normative Pluralism and International Law: Exploring Global Governance (Cambridge University Press, 2013), pp 205-206, quoting B Goldman, “The Applicable Law: General Principles of Law – Lex Mercatoria”, in J D M Lew (ed), Contemporary Problems in International Arbitration (1987).

[2] See M Elcin, Lex Mercatoria in International Arbitration - Theory and Practice (EUI, 2012), pp 43-44, 52.

[3] See Article 1511 of the French Code of civil procedure, Article 1054 of the Dutch Code of civil procedure, Article 187 of the Swiss PILA, Article 21 of ICC Rules (2021), Article 27 of SCC Rules (2023). 

[4] See eg, ICC Case No. 9419 (Extract), ICC Bulletin Vol. 10 No. 2 (1999), where the arbitrator chose to apply French law, which refers to the CISG. See also Articles 1511 of the French Code of civil procedure and 1054 of the Dutch Code of civil procedure providing that tribunals shall apply “rules of law” and take into account trade usages.

[5] See French Court of Cassation, Dalico, 20 December 1993, No. 91-16.828, where the Court applied a “règle matérielle du droit international”.

[6] SPP v. Egypt, ICSID Case No. ARB/84/3, Award, 20 May 1992, para 84. See also M Pryles, “Application of the Lex Mercatoria in international commercial arbitration” (available at https://cdn.arbitration-icca.org/s3fs-public/document/media_document/media012223880790810application_of_the_ lex_mercatoria.pdf), p 16. 

[7] See Lindsay Francis & Mangan, “Potential contract and treaty claims arising from ‘reciprocal’ tariffs” (available at Potential contract and treaty claims arising from ‘reciprocal’ tariffs - Lexology).

[8] Idem.

[9] See CMS, “Expert Guide on Force Majeure and Unforeseen Circumstances in the Context of Global Trade War” (available at https://cms.law/en/int/expert-guides/legal-guide-navigating-global-trade-wars-and-disputes) examining these concepts vis-à-vis tariff hikes under the laws of several European jurisdictions.

[10] For instance, most civil law systems impose a general duty of good faith, while English law recognises it only in limited circumstances. The English doctrine of frustration sets a high bar and only allows to terminate the contract, while the French “imprévision” as provided by Article 1195 of the French Civil Code is a broader concept allowing the judge to “rebalance” the contract when unforeseeable changes render the performance “excessively onerous”. Finally, under English law, force majeure can be invoked only if expressly provided by the contract.

[11] See Peter & Kim, “The impact of U.S. tariffs on international sales contracts” (available at Peter-Kim-Insights_Impact-of-US-tariffs-on-International-Sales-Contracts.pdf).

[12] See https://www.trans-lex.org/935000/_/duty-to-renegotiate/ and I Schwenzer and E Munoz, “Duty to renegotiate and contract adaptation in case of hardship”, Uniform Law Review, Vol. 24 (2019), p 160.

[13] E Gaillard, “Transnational Law: A Legal System or a Method of Decision Making?”, Arbitration International (March 2001), Volume 17, Issue 1, pp 62-65.

[14] Questech, Inc. v. The Ministry of National Defence of Iran, IUSCT Award No. 191-59-1, 25 September 1985, paras 48-51.

[15] Buyer (Switzerland) v. Seller (Kosovo), Final Award, ICC Case No. 16369, 2011, in: A J van den Berg (ed), ICCA Yearbook Commercial Arbitration 2014 - Volume XXXIX, pp 169-215, paras 95-126.

[16] Macromex Srl. v. Globex International Inc., AAA/ICDR Interim Award, 23 October 2007, CISG-online 1645; Award 56/1995, Bulgarian Chamber of Commerce and Industry, 24 April 1996, CISG-online 435.