State, Private & Digital Legal Systems
Origins of the Association of Law and State
The Peace of Westphalia in 1648 ended The Thirty Years’ War, one of the bloodiest conflicts in European history. These peace treaties formed the foundation for the transformation of divergent polities into sovereign states.[1] The Peace was brokered by the states for their benefit and shattered the prevailing hierarchical structures dominated by the Pope and the Holy Roman Emperor.[2] The states were granted legal protection irrespective of size, religion and lineage. Therefore, Westphalia, to some analysts represented “the starting point for the development of modern international law”.[3]
The creation of nation states with the Peace of Westphalia in 1648 was the origin of the association of law and state. With total sovereignty and the lack of outside interference, states could independently form and enforce their legal order while enjoying protection from overlapping regulation. Eventually, this association of law and state evolved with its roots firmly grounded in positive state law.
Legal Positivism is a two-century old school of thought that proposes that law can only be established by a socially organized legal authority. Legal Positivism theory is oriented to black letter law where the validity of law is viewed independent of the merits of law.[4] H. L. A. Hart, a British legal philosopher who was the most prominent supporter of Legal Positivism, separated morality from law and argued that a legal system is closed, and accurate decisions can be deduced from established legal rules without regard to social considerations.[5]
States gained sovereignty and exercised control and supremacy over law and eventually positive law prevailed in the governance of human affairs within the boundary of the state’s territory. However, this association of law and state would also have consequences beyond states’ internal boundaries in the realm of transnational trade, which by its definition could be subject to non-state law. Classical legal positivism proposed that only law developed by the state or collectively by states qualifies as law and therefore transnational trade must also be governed by state law in order to provide justice and fairness.[6]
The association of law and state has and continues to have numerous consequences on transnational business. Modern day challenges posed by globalization add significant complexity to cross-border trade. It is my opinion that international arbitration and private law governing e-commerce are noteworthy areas of non-state law that are influenced by state law.
In order to understand the influence of the association of law and state on transnational trade, one may consider some concepts of ‘rule of law’ as defined by Robert Stein to examine its applicability in the context of transnational trade. Stein argues that “the law is superior to all members of society”[7] and therefore we can deduce that it not only applies to domestic but also maintains judicial supremacy over transnational trade cases governed by non-state legal mechanisms. In today’s global economy where transnational joint ventures and public-private sector international partnerships abound, international commercial arbitration provides a cost effective and viable dispute resolution mechanism.[8] It is clear that in addition to the law governing arbitration, the laws of the seat of arbitration and of the jurisdiction (state) where the award will be enforced also apply.[9] He further proposes that “the law is known, stable and predictable”[10]. State law must possess these attributes and supersede non-state regulatory schemes that govern transnational trade. Most states have developed strict disclosure requirements for corporate equities.[11] The transnational transaction volume for these securities is on the rise and when disputes are resolved through international arbitration,[12] the arbitral procedures must adhere to the elements of state regulation on disclosures. Furthermore, “the law is just and protects human rights with legal processes accessible to ensure enforcement of the protections”[13]. The field of Consumer Protection can benefit greatly from non-state law, especially in transnational transactions with small monetary values, where it would be impractical and cost prohibitive for courts to resolve disputes.[14] However, where the consumer is involved for instance in arbitration, as matter of general legal policy, with the intersection of fundamental rights, the consumer protection law of the consumer’s state of residence should apply.[15]
Transnational Trade Law
Cotteral remarks that Law has now stretched beyond the territorial borders of the nation state.[16] Transnational trade is complex and has profusely proliferated. Even though the state has historically prevailed over other political actors and aided us in the understanding and interpretation of law, today this paradigm has shifted due to development and globalization of corporate actors, increase and awareness of the global population and the onslaught of technology.
Cotteral suggests that in order to truly comprehend transnational law, it is important to conceptualize it and map it as a new legal field. Doing so would both enhance the practice related to legal rights and obligations and also improve sociologic scholarship. In Cotteral’s view this would mean rethinking established relationships between public and private, law and state and sources of law and legal authorities.[17]?He proposes that transnational law must be understood in the context of its nature and limitations and how it manifests in the current legal landscape.
After the fall of Soviet Union and the Berlin Wall, there has been a rapid multiplication of new international institutions, including international courts, coupled with an increase in the development of informal soft law or formally binding international norm making. These norms are progressively integrated with state law as well as various areas of social life including human rights, regulatory and business law.[18]
The development of the modern-day Legal Realism focuses on two areas of international law: empiricism that provides a link to social sciences and philosophical pragmatism that encompasses legal institutions and norms in determining social expectations and behavior.[19] Legal Realism may have a potential role in the explanation and development of transnational trade law. Transnational trade law is vast and given the nature of transnational trade, the state and non-state laws are ever evolving in order to regulate and facilitate it.
Treaties are fundamental to trade law. Since, treaties are a legal undertaking, once in force, they are binding on the parties and become part of international law.[20] As of 2019, the United Kingdom has over 14,000 different types of treaties listed on its government website.[21] The following three treaties are noteworthy in the context of transnational trade: The New York Convention that regulates private international law (international commercial arbitration), the United Nations Convention on Contracts for the International Sale of Goods (CISG) that governs world trade and the Vienna Convention on the Law of Treaties which governs treaties between states. Once states become signatories to treaties, they are bound to the instruments by law and rely on them for the regulation of transnational trade. Treaties, in the modern international landscape of sovereign nations harmonize the rules, procedures and laws for the execution of transnational trade. Furthermore, while states provide inspiration for the evolution of international law, treaties can also aid in the development of domestic law. For instance, states incorporate UNCITRAL Model law to align their state law with international commercial arbitration. The example of Kosovo demonstrates that if enough states enact sales laws conforming to CISG then its rules will apply indirectly even to private parties engaged in transnational trade that otherwise opted out of the treaty.[22]
International Commercial Arbitration
Over the last few decades, international commercial arbitration has become an increasingly popular mechanism for resolving disputes in transnational trade.[23] It provides a speedier and a lower cost alternative to state courts. Furthermore, arbitral awards are confidential, final and more binding than the state court’s decision.[24] However, is arbitration an independent legal system and if not, how is it influenced by the association of law and state?
Sir Lynden Macassey points out that arbitration grew as a consequence of the failure of states in providing a viable adjudication mechanism of courts to merchants in resolving their disputes.[25] Commercial Arbitration as a formal institution originally evolved in England in 1698, with the passing of the “Act for determining differences by arbitration”.[26] In the US, it was the passing of the United States Federal Arbitration Act of 1925 that led to subjecting of commercial arbitration to state law.[27] The evolution of arbitration through the medieval ages and its eventual subjection to the state is a clear consequence of the association of law and state.
Shultz is firm when he posits that law must not be trivialized and it being a human institution, must be viewed in the light of ‘regulative quality’.[28] Arbitration does not pass Shultz’ five-point procedural condition test of qualifying as law. Furthermore, a regime built on arbitral awards in Shultz’ view is not governed by law but by men and therefore fails to qualify as an ‘instance of law’.[29] If one is to agree with Shultz’ argument and if his challenge to Fuller is a valid proposition, then arbitration does not qualify as ‘rule of law’ and remains subordinated to state law. We find several instances of judicial review of arbitral awards. Wilco v Swan, is a 1953 case regarding arbitration of securities fraud claims. The US Supreme Court declared that arbitral awards can be vacated if they are in ‘manifest disregard of the law’.[30] In the Chromalloy Aeroservices v. Arab Republic case in 1996, the US Court recognized and enforced the arbitral award and denied Egypt’s Motion to Dismiss citing the permissiveness of the national law as the more favorable provision of the New York Convention (Article VII (I)).[31] Similarly, In deciding the Corporacon Mexicana de Matenimiento Integral, S De RL De CV (Comissa) v Pemex-Exploracion y Produccion case, the US Court of Appeals for the Second Circuit upheld the decision of a district court in recognizing an arbitral award that was annulled by a domestic court in Mexico[32].
There has been a slight trend in recent years towards states exerting increasing influence over the existing non-state mechanisms. The Protection of Investment Act 2015 (South Africa) came into effect on July 13, 2018[33]. The stated purpose of the Act is to protect foreign investors in South Africa but also clearly highlights the ‘exhaustion of domestic remedies’ policy in Section 13(5) that would not only prioritize domestic state law but also subject arbitration to it in the regulation of transnational trade. Also, Brazil, India, UNASUR, South Africa and Indonesia are proponents of having their domestic courts play a more prominent role in investment dispute resolution. Roland argues that giving superiority to the domestic courts, revival of diplomatic protection and using state-based rules to solve investment disputes is suggestive of the pre-bilateral investment treaty era.[34] Among others, this trend is in response to substantive law inconsistencies in arbitration, different interpretations of meaning and scope of treaties and the diminishing state options for pressing their regulatory privileges.[35] Therefore, developing nations are employing various techniques to evade investor-state arbitration to obtain greater control over substantive law.[36] This example is especially reminiscent of Shultz’ discussion on why arbitration does not qualify as rule of law because it has inherent weaknesses that subordinates it to positive state law.
The purpose of instituting the ‘exhaustion of domestic remedies’ policy is not only greater protection but also better control over the regulation of transnational trade which can be seen as a consequence of the association of law and state.
?Online Private Legal Systems
An analysis of the cutting-edge emerging technology systems provides insight into the evolving relationship between state law and transnational trade. Furthermore, the confines of territory and nation state do not apply as rigidly in today’s world and the definition of communities has not only changed but is constantly evolving.[37] Shultz excitedly remarks that with the advent of certain online platforms, “private spheres of normativity are found that deserve to be the epitome of private legal systems.” The reason for this enthusiasm is that these flourishing regimes provide a forum for testing issues of legal systems and understand the very basic and essential features of law.[38]
The development of such a normative private legal system is a necessity firstly because of the exorbitantly large volume and low monetary value of transactions. Secondly, the abundance of digital platforms and marketplaces for transnational trade and most importantly the inability of the state courts to effectively and quickly handle the enormous load of cases.[39] For instance, eBay resolves over 60 Million disputes a year as opposed to the English courts that receive only 1.5 Million cases a year.[40] How does the association of law and state then relate to these systems in the facilitation of transnational trade? The following examples are illustrative:
Modira, an online dispute resolution (ODR) service provides a three-step process: diagnosis, negotiation and mediation to its customers. Modera has collaborated with American Arbitration Association to manage its New York No Fault case load of more than 100,000 per year. This is an example of an online private legal system reaching out to assist another non-state private legal system while working within the constraints of state law and consequentially facilitating trade.[41]
Similarly, the EU has approved two legislative texts on Alternative Dispute Resolution (ADR) and ODR. The ADR scheme will operate online and observe procedural standards while the ODR will make all ADR processes available through a website. The combined scheme will facilitate cross border claims. In doing so, the online platform will directly facilitate transnational trade within the constraints of EU law and regulation.[42]
These examples illustrate the organic development of technology platforms, their private ‘online’ legal systems and the eventual subjection to law and state. It also shows how these systems have evolved to assist and enforce rule of law and facilitate trade.
Conclusion
This essay examined the association of law and state and its consequences on transnational trade. It must also be admitted that the emergence of sovereign states and positive law had several important impacts, including the advancement in science, technology, the rule of law and even the innovation in private legal systems, which as a consequence laid the fertile ground for not only domestic growth but also flourishing of transnational trade.
[1] Beaulac, Stephane. “The Westphalian Model in Defining International Law: Challenging the Myth.” SSRN Scholarly Paper. Rochester, NY: Social Science Research Network, 2004. https://papers.ssrn.com/abstract=672241. 183
[2] Holsti, Kalevi J., Kalevi Jacque Holsti, and Kalevi Jaakko Holsti. Peace and War: Armed Conflicts and International Order, 1648-1989. Cambridge University Press, 1991. 25
[3] ibid,?39
[4] Bix, Brian. “Legal Positivism.” SSRN Scholarly Paper. Rochester, NY: Social Science
Research Network, January 24, 2003. https://doi.org/10.2139/ssrn.369782. 29
[5] Hart, H. L. A. “Positivism and the Separation of Law and Morals.” Harvard Law Review
71, no. 4 (February 1958): 593. https://doi.org/10.2307/1338225. 601
[6] Schultz, Thomas. “How Conceptions of Justice Associated with the Nation-State Obstruct Our View on Possibilities of Transnational Commercial Law.” SSRN Scholarly Paper. Rochester, NY: Social Science Research Network, September 16, 2014. https://papers.ssrn.com/abstract=2496795, 353
[7] Robert Stein,?Rule of Law: What Does It Mean?, 18?Minn. J. Int'l L.?293 (2009),?available at?https://scholarship.law.umn.edu/faculty_articles/424. 302
[8] Jr, George W Coombe. “The Resolution of Transnational Commercial Disputes: A
Perspective from North America.” Comparative Law 5 (1999): 15.
[9] King, Wood Mallesons-Paul Starr, Richard Lyons, and Suraj Sajnani. “Arbitration Agreements – Which Law
Applies? | Lexology.” Accessed June 18, 2020. See general
https://www.lexology.com/library/detail.aspx?g=65ecf2ad-488f-482c-b670-db49bce80b95.
[10] Stein, supra note 7
[11] Fox, Merritt. “Securities Disclosure in a Globalizing Market: Who Should Regulate Whom.” Michigan Law
Review 95, no. 8 (August 1, 1997): 2498–2632. See general
[12] Van Houtte, Hans. “Arbitration Involving Securities Transactions.” Arbitration International
12, no. 4 (December 1, 1996): 405–14. https://doi.org/10.1093/arbitration/12.4.405. See general
[13] Stein, supra note 7
领英推荐
[14] Schultz, supra note 6, at 356
[15] Schultz, supra note 6, at 357. Also see Iris Ben?hr, EU Consumer Law and Human Rights, Oxford Scholarship Online, 214, See General.
[16] Cotterrell, Roger. “What Is Transnational Law?” Law & Social Inquiry 37, no. 02 (2012):
[17] ibid
[18] Shaffer, Gregory. “Legal Realism and International Law.” SSRN Scholarly Paper.
Rochester, NY: Social Science Research Network, August 13, 2018. 2
https://papers.ssrn.com/abstract=3230401.
[19] ibid
[20] “What Is a Treaty: Finding U.S. Government Documents at the Library of Congress.” See general
[21] GOV.UK. “UK Treaties.” Accessed June 19, 2020. https://www.gov.uk/guidance/uk
treaties. “What Is a Treaty: Finding U.S. Government Documents at the Library of
Congress.” Accessed June 19, 2020. See General
[22] Brand, Ronald A. “The CISG: Applicable Law and Applicable Forums.” SSRN Scholarly
Paper. Rochester, NY: Social Science Research Network, June 12, 2019.
[23] Szalay, “A Brief History of International Arbitration, Its Role in the 21st Century and the Examination of the Arbitration Rules of Certain Arbitral Institutions With Regard to Privacy and Confidentiality.” 14
[24] Harrison, Jeanne M, Smith Currie. “Is Arbitration Final and Binding?” Accessed June 18, 2020.
binding/. See general
[25] Macassey, Lynden. “INTERNATIONAL COMMERCIAL ARBITRATION,—ITS ORIGIN,
DEVELOPMENT AND IMPORTANCE.” American Bar Association Journal 24,
no. 7 (1938): 518
[26] ibid 520 521
[27] Macassey, supra note 25 at 522
[28] Schultz, Thomas. “How Conceptions of Justice Associated with the Nation-State Obstruct Our View on
Possibilities of Transnational Commercial Law.” SSRN Scholarly Paper. Rochester, NY: Social Science
Research Network, September 16, 2014. https://papers.ssrn.com/abstract=2496795. 85
[29] Ibid 76
[30] Helm, Katherine. Dispute Resolution Journal, “The Expanding Scope of Judicial Review of Arbitration Awards:” 11/06 to 1/07 available at https://www.stblaw.com/docs/default-source/cold-fusion-existing-content/publications/pub1124.pdf?sfvrsn=2 5
[31] Ostrowski and Shany, “Chromalloy: United States Law and International Arbitration at the Crossroads.” NYU Law Review 1653
[32] Kantor, Mark, “Arbitration Award Overturned in Mexico, Confirmed in New York.” American Bar Association, 2016 available at https://www.americanbar.org/groups/litigation/committees/alternative-dispute-resolution/practice/2016/arbitration-award-overturned-mexico-confirmed-ny/
[33] Protection of Investment Act, 2015, Government Gazzette, Republic of South Africa, 15 December 2015 10
[34] Rolland, Sonia E. “The Return of State Remedies in Investor-State Dispute Settlement:
Trends in Developing Countries.” SSRN Scholarly Paper. Rochester, NY: Social Science. See General
Research Network, 2018. https://papers.ssrn.com/abstract=3171510. 387
[35] ibid 389
[36] ibid 390
[37] Berman, Paul Schiff. “The Globalization of Jurisdiction,” n.d., University of Pennsylvania Law Review
December 2002 320
[38] Shultz, Thomas. “Private Legal Systems: What Cyberspace Might Teach Legal Theorists.” SSRN Scholarly Paper. Rochester, NY: Social Science Research Network, January 1, 2007. https://papers.ssrn.com/abstract=1805793. 1
[39] Ibid See general
[40] Cortes, Pablo. “Online Dispute Resolution Services: A Selected Number of Case Studies.”
SSRN Scholarly Paper. Rochester, NY: Social Science Research Network, August 8, 2014.
[41] ibid 176
[42] ibid 176