Commercial Norms, Commercial Codes, and International Commercial Arbitration
Drahozal, Christopher R., Vanderbilt Journal of Transnational Law
This Article examines whether the incorporation of commercial norms into commercial codes is an appropriate law-making strategy. Most commercial codes, including the Uniform Commercial Code, regard common business practices as an important source for courts to consider when resolving contract disputes. Yet some scholars criticize this incorporation strategy, arguing that reliance on commercial norms is often inappropriate and may distort the true nature of the parties' agreement. Reliance on commercial norms does restrict the ability of contracting parties to allocate part of their agreement to extra-legal means of enforcement. Nevertheless, this Article asserts that those costs may be outweighed by the benefits of incorporating commercial norms into commercial codes.
The Article looks to international commercial arbitration as a source of evidence for evaluating the appropriate role of commercial norms in resolving contract disputes. This evidence is helpful to answering the question whether the costs of relying on commercial norms outweigh the benefits because international arbitration is consensual, resembles adjudication in public courts in important ways, and is a highly competitive business. The author finds that, generally, international commercial arbitration relies on commercial norms to resolve such contract disputes. Although the evidence presented is not conclusive, it does suggest that the benefits of reliance on trade usages (but not prior dealings between the parties) exceed the costs from any distortion of the parties' agreement.
Modern commercial codes treat common business practices--as reflected in usages of the trade as a whole and in the prior dealings of the parties to the contract--as an important source to which courts can turn in resolving disputes about the parties' obligations under their agreement. Article 2 of the Uniform Commercial Code (UCC) provides that usages of trade, courses of dealing, and courses of performance "give particular meaning to and supplement or qualify terms of an agreement."(1) The rationale of the drafters of Article 2 was that such norms of commercial behavior are an important source of rules governing the parties' behavior and that a commercial code should incorporate those norms when available.(2) The Convention on Contracts for the International Sale of Goods (CISG) similarly provides that the "parties are bound by any usage to which they have agreed and by any practices which they have established between themselves," including any "usage of which the parties knew or ought to have known and which in international trade is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade concerned."(3)
Whether incorporation of commercial norms into commercial codes is an appropriate law-making strategy has become the subject of much scholarly debate.(4) Criticizing the incorporation strategy is Professor Lisa Bernstein, who argues that commercial norms may reflect practices that seek to preserve the relationship of the parties ("relationship-preserving norms") rather than the norms the parties themselves would choose when their relationship essentially is at an end ("end-game norms").(5) The costs from such an inappropriate reliance on commercial norms, Bernstein argues, may outweigh the informational value of norms to generalist judges in understanding the parties' agreement. She finds evidence in support of her thesis in the treatment of trade usages and parties' dealings by arbitrators resolving disputes under the auspices of the National Grain and Feed Association (NGFA). NGFA arbitrators, Bernstein concludes, use a much more formalistic approach to resolving contract disputes than do judges applying modern commercial laws. This more formalistic approach gives clear precedence to the parties' contract terms and to the trade rules of the association over uncodified trade practices and dealings of the parties. …