Rethinking the Role of Law and Contracts in East-West Commercial Relationships Philip J. McConnaughay*



Rethinking the Role of Law and Contracts in East-West Commercial Relationships Philip J. McConnaughay*



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A fundamental difference between Western and Asian commercial traditions concerns the role of law and contracts in the ordering and governance of commercial relationships.

In the West, law and contracts could not be more significant. In contrast, law and contract traditionally have not shaped commercial expectations in Asia. “What is really arresting” about the traditional role of law in private affairs in China, wrote Derk Bodde and Clarence Morris in their seminal work, “is the overt hostility” with which law was popularly regarded.4 And for fairly good reason. Unlike in the West, where law is bound up with ideas of deistic origin and moral authority,5 the associational reference for law in most of the Far East was imperial or despotic rulers, for whom law served merely the instrumental purpose of imposing on the general population arbitrary commands and duties having everything to do with the rulers’ discretionary prerogatives, but little or nothing to do with private spheres of life and commerce.6 “There was no concept of law,” writes John Owen Haley, “as a means of private, autonomous ordering.”7 Commercial matters were governed like other interpersonal

* Associate Professor, University of Illinois College of Law. Professor McConnaughay was a partner of Morrison & Foerster, resident in Tokyo and Hong Kong, between 1987 and 1996.

1 I am using the word “contract” in its ordinary sense to refer to the writing that contains the terms to which the contracting parties have agreed. I am not intending a more technical reference to all promises that the law will enforce. See e.g., E. Allen Farnsworth, FARNSWORTH ON CONTRACTS 3 (2d ed., 1990). The international commercial relationships that are my focus in this article typically begin with written contracts.

2 See notes 41 to 48 and accompanying text, infra.

3 See notes 42 and 43 and accompanying text, infra. Although legally enforceable “reasonable” expectations, of course, may differ from purely subjective expectations (see note 42, infra), my point is simply that Western commercial parties tend to expect no more or less than what is explicit in their contracts and the law.

4 Derk Bodde and Clarence Morris, LAW IN IMPERIAL CHINA 13 (1967).

5 See notes 40 and 75 and accompanying text, infra.

6 See notes 60 to 65 and accompanying text, infra. See notes 27 to 30 and accompanying text, infra, for elaboration on what I mean by the “West,” and note 60, infra, for elaboration on what I mean by “Asian.”

7 John Owen Haley, AUTHORITY WITHOUT POWER: LAW AND THE JAPANESE PARADOX 197-98 (1991).

relationships, with status and mutual accommodation rather than external principles of law or contract shaping and controlling expectations and performance.8 It is not that written contracts were irrelevant or nonexistent in traditional Asian commercial relationships

One of the most perplexing challenges confronting international contract and dispute resolution practices today is to account somehow for these fundamentally different views of law and contracts in the structure and governance of commercial relationships that often still prevail in East-West transactions. The more prevalent prediction of the complete Westernization of all international commercial practices, I suspect, is either mistaken or, at best, decades premature. To be sure, certain trends do support the Westernization prediction. At the level of popular culture in non-Western nations, emerging trends in dress, music, food, and the popular arts clearly have a decidedly Western (if not American) flavor.11 And Western models for civil and commercial lawmaking throughout Asia are both obvious and well known. Japan’s more-than-a-century-old civil code essentially replicates the late 19th century German Civil Code,12 Korea’s commercial laws are strongly influenced by Germany’s (via Japan),13 Taiwan’s by those of Germany and France,14 Singapore’s and Malaysia’s by England’s,15 Indonesia’s by The Netherlands’s,16 and most civil and commercial lawmaking in China and Vietnam today continues on a path of convergence with the

8 See notes 69 to 77 and accompanying text, infra.

9 See notes 80 and 109, infra, and Lester Ross, Force Majeure and Related Doctrines of Excuse in Contract Law in the People ‘s Republic of China, 5 J. CHINESE L. 58, n.32 at 67 (“contracts have assumed a much greater role [in China today]. By the late 1980s the number of written contracts exceeded 700 million per year, creating great pressure for the standardization of contract language.”).

10 Arthur T. von Mehren, Some reflections on Japanese Law, 71 HARV. L. REV. 1486, 1494 (1958). See generally Part II(A) and (B), infra.

11See e.g., James L. Watson, China ‘s Big Mac Attack, 79 FOREIGN AFFAIRS 120, 121 (May/June, 2000)

12 See e.g., Dan Fenno Henderson, CONCILIATION AND JAPANESE LAW: TOKUGAWA AND MODERN 189 (Vol. II, 1965)

13 Jae Yeol Kwan, Diferences Between the Commercial Codes of the United States and Korea, 29 LOY. L.A. L. REV. 1095, 1103-1106 (1996).

14 Pittman B. Potter, Doctrinal Norms and Popular Attitudes Concerning Civil Law Relationships in Taiwan, 13 UCLA PAC. BASIN L. J. 265, 271 n.23 (1995).

15 See e.g., M.B. Hooker, A CONCISE LEGAL HISTORY OF SOUTH-EAST ASIA 124-152 (1978).

16 See e.g., Satjipto Rahardjo, Between Two Worlds: Modern State and Traditional Society in Indonesia, 28 LAW & SOC. REV. 493 (1994) and Daniel S. Lev, Judicial Institutions and Legal Culture in Indonesia, in CULTURE AND POOLITICS IN INDONESIA 246 (Clare Holt, ed. 1972). See also note 82, infra.

West.17 So perhaps it is because of these obvious trends that many of today’s leading scholars of international transactions insist that the principal challenge confronting international contract and dispute resolution practices is not, as I have suggested, accounting for Western/non-Western differences, but instead, cementing the Westernization of these practices by imposing “control mechanisms” sufficient to ensure the predictable and reliable enforcement of contract and other legal entitlements and claims.18

But the surface appeal of these trends is belied by the reality of marketplace behavior by many Asian commercial parties. The penetration in Asian societies of Western legal traditions and values is not deep. It may be true that Japan now has well over one hundred years of experience with Western civil law, but it also is true that preexisting, centuries-old relational practices continue to play a significant role in shaping Japanese behavior and expectations with respect to commercial and other associational relationships.19 And the same embeddedness of preexisting relational practices is apparent in China, Korea, and the other nations of Asia whose adoption of Western-like expressive law is even more recent.20 This divergence in Asia between expressive law and commercial behavior, moreover, is perfectly understandable: not only was law traditionally not a significant factor with respect to the ordering and performance of commercial relationships in Asia, its relatively recent enactment and application to this sphere of activity was essentially externally inspired as a condition of commerce with the West21 and, as such, unaccompanied by the fundamental change in individual attitudes

17 See e.g., Wang Liming and Xu Chuanxi, Fundamental Principles of China ‘s Contract Law, 13 COLUM. J. ASIAN L. 1, 8 (1999) (“In order to further develop its economy and integrate itself into international market, China must learn from the contract legislation in other legal systems and bring its contract law into maturity and modernization.”)

18 See notes 126 to 135 and accompanying text, infra.

19 See e.g., Dan Fenno Henderson, The Japanese Law in English: Some Thoughts on Scope and Method, 16 VAND. L. REV. 601, 607-12 (1983) (“[The Japanese now have] hundreds of years of experience with imported justiciable law, [and] [t]he legal literature produced in this period – treatises, commentaries, and case law — is voluminous, systematic and refined. [Nevertheless,] [t]he mix of social and legal institutions remains subtle and elusive to the comparative lawyer with little exposure to Japanese society.”), and note 114, infra. See note 115, infra, for the suggestion that the ongoing influence of these traditional practices may be due more to structural than cultural factors.

20 See notes 113 and 114 and accompanying text, infra. See also e.g., Stanley B. Lubman, Dispute resolution in China After Deng Xiaoping: Mao and Mediation Revisited, 11 COLUM. J. ASIAN L. 229, 376 (1997) (noting that “The strength of these traditional values [in China] presents a considerable obstacle to the deepening of legal consciousness and the strengthening of legal institutions”) and, William Shaw, Traditional Korean Law and Its Relation to China, in ESSAYS ON CHINA’S LEGAL TRADITION 302, 318 (Jerome Alan Cohen, R. Randle Edwards, and Fu-Mei Chang Chen, eds., 1980) (noting that “work is just now beginning on the study of how the traditional Asian legal systems met and often persisted under the “Westernizing” reforms demanded by the treaty powers.”).

21 See notes 108 to 111 and accompanying text, infra.

and values essential to the determinative role of law and contracts in commercial affairs in the West.22

I do not intend my observance of this normative “gap” between expressive law and commercial behavior in Asia to suggest that I find something disagreeable about the worldwide trend toward the rule of law,23 whether it proceeds from the top down or the bottom up or whether it is externally or internally inspired. But when the transition from relational to legal practices, as in Asia, is both externally inspired and imposed on the populace rather than emerging at their behest naturally from their traditions, it is far more realistic to speak in terms of the decades (or even centuries) rather than the years before “rule of law” values are in any real sense pervasive.24 Further, it is by no means clear that the eventual content (as opposed to near-term content) of commercial laws throughout the world necessarily will replicate or even resemble the content of the commercial laws today of industrialized nations having Western legal traditions. The much-heralded worldwide “harmonization” of commercial law, in other words, does not necessarily also herald its Westernization

This article explores some of these issues. Part I provides a brief summary of Western practices and traditions regarding the role of law and contracts in the structure and governance of commercial relationships, and Part II a more extended summary of counterpart Asian practices and traditions.26 Part III then addresses, in selected contexts,

22 See id and e.g., Dan Fenno Henderson, CONCILIATION AND JAPANESE LAW, supra note 12, at 188-90 (noting that, “without detracting from the magnitude of the Meiji accomplishments, it is enough to recognize that the reception of foreign law was to a large extent externally inspired and that the social efficacy of the alien codes has been understandably gradual and only partial among the populace”), and Peter Howard Corne, FOREIGN INVESTMENT IN CHINA: THE ADMINISTRATIVE LEGAL SYSTEM 1 (1997) (noting that, “a legal system [in China] acceptable to foreign investors has become a key factor in attracting Western support. However, the adoption of such a system necessarily entails a clash between the norms as expressed in law, and pre-existing attitudes”).

23 See notes 30 to 36 and accompanying text, infra. By “rule of law” I am referring generally to the primacy of law and to the popular belief that law should be the principal organizing framework of society. Id.

24 Cf., John V. Orth, Exporting the Rule of Law, 24 N.C. J. INT’L L. & COMM. REG. 71 (1998) (“The achievement of the Rule of Law in Western Europe and North America took place over centuries and decades, not months and weeks.”), and Frederick Pollock and Frederick W. Maitland, THE HISTORY OF ENGLISH LAW 184 (2nd ed, vol.2, 1968) (“Many centuries must pass away before [the law of contract] wins that dominance which we at the present day concede to it.”).

25 This is a significant deficiency of much existing scholarship in this area, which wrongly assumes the universality of the Western preference for “legal predictability” in international contracting and dispute resolution practices. See e.g., notes 125 to 135 and accompanying text and note 142, infra.

26 See notes 27 to 30 and note 60 and accompanying text, infra, for explanations of “Western” and “Asian” (or “non-Western”) and why, despite the rich diversity of people, nationalities, religions, and customs

the core question of whether contracting and dispute resolution mechanisms exist or can be devised that account for the major differences between the Western and non-Western world with respect to the role of law in contracts in the structure and governance of commercial relationships. My initial focus is the capacity in this regard of international commercial arbitration. The institution of international arbitration was designed purposefully not to possess or reflect preordained notions of how differences between parties from different nations or legal traditions should be addressed and resolved. I will consider whether this original design is susceptible of manifestations capable of facilitating commercial relations between parties from legal traditions so fundamentally different that law and contracts are determinative of outcomes in one but subordinate to other values in the other. I also will consider whether certain substantive standards of decision-making (i.e., contractual choices of “law”), such as amiable composition, ex aequo et bono, and lex mercatoria, possess the same capacity. Finally, I will briefly explore whether new contractual terms might be devised that blur the distinction between dispute resolution and performance and by doing so help effect an accommodation between Western commercial traditions and the non-Western traditions of Asia. From a Western perspective, each of these possibilities clearly increases risk in a commercial relationship to the extent that “risk” in the West is perceived as the likelihood of divergence from some precise, preordained expectation or standard of conduct. However, if the primary objective of contract drafting in a cross-cultural commercial relationship is the success of the relationship, as it should be, and not simply the advantage of one party or the other in the event of the relationship’s failure, each of these possibilities also represents a contractual mechanism that might contribute to the commercial stability of East-West ventures.

Part I. The Role of Law and Contracts in the Structure and Governance of Western Commercial Relationships

It is now generally recognized that it is appropriate to speak of a “Western legal tradition,” particularly for purposes of contrast with non-Western traditions, despite the rich diversity of people, nationalities, religions, customs, and rules within the Western tradition. The reference typically is to the legal culture that emerged from ancient Greece and Rome

within each of these traditions, the salient features of each tradition with respect to the role of law and contracts in commercial relationships are susceptible of generalization and comparison.

27 Harold J. Berman, LAW AND REVOLUTION: THE FORMATION OF THE WESTERN LEGAL TRADITION 2 (1983).

28 John Henry Merryman, On the Convergence (and Divergence) of the Civil Law and the Common Law, 17 STAN. J. INT’L L. 357,358 (1981).

29 Id.

Over the centuries there have been numerous contacts between countries of the Romano-Germanic family and those of the Common law, and the two families have tended, particularly in recent years, to draw closer together. In both, the law has undergone the influence of Christian morality and individualism, liberalism, and personal rights. Henceforth, at least for certain purposes, this reconciliation enables us to speak of one great family of Western law. [A]bove all, the formulation of the legal rule tends more and more to be conceived in Common law countries as it is in the countries of the Romano-Germanic family. As to the substance of the law, [there is] a shared vision of justice.30

The “shared vision of justice” to which David and Brierley refer is anchored in what we in the West know as “the Rule of Law” – the “[rule] of laws, and not of men,” as Chief Justice Marshall articulated the familiar contrast in Marbury v. Madison.31 The “Rule of Law” occupies exalted status in the Western legal tradition, although its precise meaning and characteristics historically have been a matter of intense focus and discussion by legal scholars.32 Its essential characteristics include “publicly promulgated rules, laid down in advance,”33 the capacity of the rules to guide people in the conduct of their affairs,34 the availability of instrumentalities and fair procedures necessary to enforce the law, and, the supremacy of the law over officials as well as ordinary citizens.35 The “shared vision of justice” throughout the West emerges specifically from the functional properties of the rule of law — from “the belief (and practice) that law should be the principal organizing framework of government and society.”36

30 Rene David and John E.C. Brierley, MAJOR LEGAL SYSTEMS IN THE WORLD TODAY 25 (3rd ed., 1985).

31 Marbury v. Madison, 5 U.S. (1 Cranch) 137, 163 (1803).

32 Richard H. Fallon, Jr., “The Rule of Law” as a Concept in Constitutional Discourse, 97 COLUM. L. REV. 1 (1997) (“The Rule of Law is a much celebrated, historic ideal, the precise meaning of which may be less clear today than ever before.”)

33 Lon L. Fuller, THE MEANING OF LAW 43 (rev. ed 1964).

34 Richard H. Fallon, Jr., “The Rule of Law, ” supra note 31, 97 COLUM. L. REV. 1, 8.

35 Id. See also e.g., A.V. Dicey, INTRODUCTION TO THE STUDY OF THE LAW OF THE CONSTITUTION 184-198 (10th ed. 1959) (“[W]hen we speak of the ‘rule of law’ as a characteristic of our country, [we mean] not only that no man is above the law, but that here every man is subject to the ordinary law of the realm and amenable to the jurisdiction of the ordinary tribunals.”).

36 John H. Barton, James L. Gibbs, Jr., Victor Hao Li, and John Henry Merryman, LAW IN RADICALLY DIFFERENT CULTURES 9 (1983). The full quote, from which I have borrowed the above phrase, is, “Legalism is the belief (and practice) that law should be the principal organizing framework of government and society. Legalism, in this sense, is the rough equivalent of ‘the rule of law’ . From this point of view the United States is notoriously legalistic, as commentators have never tired of pointing out since early in the 19th century . Although the United States is generally considered an extreme of legalism, other Western legal systems certainly share this characteristic.” Id.

Law is the “principal organizing framework of government and society” precisely because of its primacy – its supremacy – in Western life. As A.V. Dicey proclaimed at the dawn of the last century, “Englishmen are ruled by law, and by law alone.”37 And the “law” by which the West is ruled is written published law, our constitutions and codes, from which all other legal authority is derived.38 In the Western legal tradition, written law guides and commands and entitles and people and government obey

For purposes of the East-West comparisons I will be making in this article, it is the organizing force of law in private commercial affairs, in contrast to public and governmental affairs, with which I am most concerned. In this context, the organizing force of written contracts is almost equivalent to that of law. As with law, it is the text of the contract (or the lack of text) and its interpretation that guides and commands and

37 A.V. Dicey, INTRODUCTION TO THE STUDY OF THE LAW OF THE CONSTITUTION, supra note 35, at 199. The context of Dicey’s proclamation was as follows: ” Th[e] ‘rule of law’ means, in the first place, the absolute supremacy or predominance of regular law as opposed to the influence of arbitrary power, and excludes the existence of arbitrariness, or prerogative, or even of wide discretionary authority on the part of the government. Englishmen are ruled by the law, and by the law alone

38 See e.g., note 33 and accompanying text, supra, and Tennessee Valley Authority v. Hill, 437 U.S. 153, 173 (1978) (courts must look to the “plain meaning of [a statute’s] ordinary language” when determining the scope of legal authority).

39 See e.g., Geoffrey C. Hazard, Jr. and Michele Taruffo, AMERICAN CIVIL PROCEDURE viii – ix (1993) (“[I]n legal systems based on the Western tradition, the tribunal is in principle indifferent to the social consequences of the outcome of a specific case. The constitutional function of a court is to decide each case according to law. Concentration on the law and facts of the specific case reflects the concept that justice should be administered according to law, not according to social necessity.”) See also id., at 78 (noting that, in the civil law system, “law is considered to have anticipated the circumstances revealed in the case and the court’s task is to discern the result that the law has foreordained.”).

40 Consider e.g., Judith N. Shklar, LEGALISM: LAW, MORALS AND POLITICAL TRIALS (1986) noting that “[legalism is] the ethical attitude that holds that moral conduct to be a matter of rule following, and moral relationships to consist of duties and rights determined by rules”)

entitles in commercial relations, and that provides the standard against which the propriety of commercial conduct is judged.41 In the ordinary course of commerce in the Western world, we write out and sign our commercial contracts and then arrange and perform – “order” – our subsequent affairs accordingly. Any variation or deviation from the precise terms of the contract risks breach, blame, and liability. And although such issues will be judged according to the objective reality the words of the contract reveal,42 in truth, the subjective expectations of those from the Western legal tradition tend to comport with contractual expression. In the West, we fully expect that contracts and law will play the roles that they do in organizing and ordering our commercial relationships

The primacy of written contracts in Western commercial relationships is reflected in the variety of traditional rules of contract law that are designed both to promote the ever-increasing particularity of written contracts, and to accord preeminent status to written contracts in the resolution of commercial disputes. The parol evidence rule is a good example. This rule essentially forbids the consideration in a commercial dispute of prior or contemporaneous writings or statements of the parties that contradict or supplement their contract as finally written.44 Thus, the rule places commercial parties at risk of losing the benefit of any term not specified in the contract, and essentially restricts to the contract’s explicit terms the sources that may be considered in establishing the substantive content of a commercial transaction.45 A variety of interpretive rules and

41 See e.g., Eric A. Posner, The Parol Evidence Rule, the Plain Meaning Rule, and the Principles of Contractual Interpretation, 146 U. PA. L. REV. 533 (1998) (“[W]hen a contract’s terms specify the obligations of the parties in the case of some contingency, and the contingency occurs, a court should enforce the terms.”), and Ian R. Macneil, Contracts: Adjustment of Long-Term Economic Relations Under Classical, Neoclassical, and Relational Contract Law, 72 Nw.U.L.Rev. 854, 864 (1978) (noting that classical contract law “equates the legal effect of a transaction with the promises creating it.”). Obviously, the contract’s organizing force in this regard derives from and occurs in accordance with the law. As Lord Diplock observed in Amin Rasheed Shipping Corporation v. Kuwait Insurance Company [1983] 3 W.L.R. 241, 245, “[T]he purpose of entering into a contract being to create legal rights and obligations between the parties to it, interpretation of the contract involves determining what are the legal rights and obligations to which the words used in it give rise. This is not possible except by reference to the system of law by which the legal consequences that follow from the use of those words is to be ascertained.”

42 See e.g., Oliver Wendall Holmes, THE COMMON LAW 242 (Howe edition 1963) (“The law has nothing to do with the actual state of the parties’ minds. In contract, as elsewhere, it must go by externals, and judge parties by their conduct.”). See also RESTATEMENT (SECOND) OF CONTRACTS § 2(1), comment c.

43 “Contract law [is] founded on the assumption that all of a [commercial] relation[ship] is encompassed in some original assent to it.” Ian R. MacNeil, Contracts: Adjustment of Long-Term Economic Relations Under Classical, Neoclassical, and Relational Contract Law, 72 Nw.U.L.Rev. 854, 888 (1978).

44 See e.g., E. Allen Farnsworth, FARNSWORTH ON CONTRACTS 192 (2d ed. 1990), and John D. Calamari and Joseph M. Perillo, THE LAW OF CONTRACTS 122 (4th ed. 1998). The parol evidence rule is complex, highly criticized, and qualified to one degree or another in many jurisdictions. My point in the reference is simply to illustrate the preferred status the written contract enjoys in Western commercial dispute resolution. See generally id., 121 -148 and sources cited therein.

45 See e.g., id at 124. Merger clauses are a standard contract drafting technique in the West for achieving this effect. Id., 139-40. See also K.M. Sharma, From “Sanctity” to “Fairness “: An Uneasy Transition in the Law of Contracts, 18 N.Y. L. Sch. J. INT’L & COMP. L. 95, 156 n. 216 (1999) (“Classical theorist[s]

canons of construction within contract law have the same purpose and effect.46 And there can be little doubt that the sanctity of written contracts is what lies behind the virtually insurmountable hurdles traditionally imposed by the doctrines of impossibility, impracticality of performance, frustration, and other similar manifestations of force majeure.47 “Promises must be kept though the heavens fall,” is their traditional command.48

The primacy of law and contracts in the governance of Western commercial relationships is reinforced by the procedural regularity that typically accompanies adjudicated dispute resolution.49 Clearly this is the case in the national courts of the nations of the Western world, where strict rules of judicial impartiality, transparency, procedure, and evidentiary relevance combine for the purpose and intended effect of yielding “legally proper” outcomes.50 And this tends to be the case as well, albeit imperfectly, in international commercial arbitrations involving parties from Western legal traditions: “The typical international arbitration, whether influenced by the civil law or common law tradition, is conducted in a formal adversary hearing unadulterated by

and judges, expressing strong faith in the objectivity of language, extolled the prudence of the parol evidence rule as a valuable incentive to reduce agreements to writing and, equally as an important safeguard against dissemblers.”).

46 See generally, E. Allen Farnsworth, FARNSWORTH ON CONTRACTS, supra note 44, §§ 7.11 to 7.14 at 514 to 540, and 1 S. Williston CONTRACTS §95 (3rd ed. 1957) (“The court will give that language [in a written contract] its natural and appropriate meaning

47 See e.g., Nagla Nassar, SANCTITY OF CONTRACTS REVISITED 205-215 (1999).

48 Silverman v. Charmac, 414 So.2nd 892 (Ala. 1982)

49 See e.g., Hazard and Taruffo, AMERICAN CIVIL PROCEDURE, supra note 38, at ix (“Given [the importance of administering justice according to law], the procedure for adjudication must meet certain requirements.”).

50 Although it is true in the West that procedural justice unaccompanied by substantive justice may be an acceptable outcome (assuming all procedural opportunities have been afforded and administered fairly), see e.g., Stanley B. Lubman, Dispute Resolution in China After Deng Xiaoping: Mao and Mediation Revisited, 11 COLUM. J. ASIAN L. 229, 334 (1997) (“In the Western view [p]rocedural justice is so important that some substantive injustice will be tolerated in the interests of stability.”), it also is true, nonetheless, that Western adjudicatory procedures are intended to achieve substantively correct outcomes.

techniques associated with conciliation or ‘alternative dispute resolution. ‘”51 Leading commentators from throughout the Western world repeatedly issue calls for the reform of international commercial arbitration to the extent that it deviates from this Western ideal. They urge the replacement of arbitral privacy by greater transparency,52 the standardization of arbitral procedure and evidentiary rules,53 the elimination of equitable decision-making and strict adherence to law,54 the publication of reasoned arbitral awards,55 strict adherence to stare decisis,56 and generally, the adoption of any similar “control mechanisms” necessary to ensure “legally proper” results.57

In short, the role of law and contracts in the ordering and governance of Western commercial relationships could not be more significant. They are the ultimate guides and determinants of proper commercial conduct, and their primacy is reinforced by rules of interpretation, evidence, and procedure designed to exclude the influence of noncontractual values and circumstances and facilitate the comparison of commercial conduct to written contractual prescriptions for the purpose of determining rights, duties and liabilities in commercial relationships.

Part II. The Role of Law and Contracts in the Structure and Governance of Asian Commercial Relationships

Many Asian businessmen and women obviously are aware of and perfectly understand Western practices and expectations with respect to the role of law and contracts in the ordering and governance of commercial relationships. But awareness is different from acceptance, and even “acceptance” does not necessarily mean that the

51 Alan S. Rau and Edward F. Sherman, Tradition and Innovation in International Arbitral Procedure, 30 TEX. INT’L L.J. 89, 91 (1995).

52 See e.g., Richard M. Buxbaum, Introduction, 4 INT”L TAX & BUS. LAW 205, 208 (1986).

53 See e.g., Charles N. Brower, Evidence Before International Tribunals: The Need for Some Standard Rules, 28 INT’L LAW. 47, 58 (1994) and Robert von Mehren, From Vignior ‘s Case to Mitsubishi: The Future of Arbitration and Public Law, 12 BROOKLYN J. INT’L L. 583, 626 (1986).

54 See e.g., F. A. Mann, England Rejects ‘Delocalized’ Contracts and Arbitration, 33 INT’L & COMP. L.Q. 193, 196-97 (1984) (urging the rejection of lex mercatoria and other anational and equitable rules of decision in international arbitration because “[it is their] purpose to substitute ill-defined ‘equity’ for rules of law . It is difficult to imagine a more dangerous, more undesirable and more ill-founded view which denies any measure of predictability and certainty and confers upon parties to an international commercial contract or their arbitrators powers that no system of law permits and no court could exercise.”)

55 See e.g., Julian D.M. Lew, The Case for the Publication of Arbitration Awards, in THE ART OF ARBITRATION (Jan C, Schultz and Albert Jan van den Berg, eds. 1982), and Thomas E. Carbonneau, Arbitral Adjudication: A Comparative Assessment of its Remedial and Substantive Status in Transnational Commerce, 19 TEX. INT’L L. J. 33, 39 (1984) (“It is the thesis of this article that reasoned awards are the appropriate instruments by which to fulfill the normative potential of transnational arbitration.”).

56 See e.g., Bernardo M. Cremades and Steven L. Plehn, 2 B.U. INT’L L.J. 317, 336-337 (1984) (suggesting “the formation of institutions which give arbitrators access to prior arbitration awards and require them to follow a more or less strict rule of stare decisis.”).

57 See generally, W. MICHAEL REISMAN, SYSTEMS OF CONTROL IN INTERNATIONAL ADJUDICATION AND ARBITRATION 46 (1992), and William W. Park, Control Mechanisms in the Development of a Modern Lex Mercatoria in LEX MERCATORIA AND ARBITRATION 109 (Thomas E. Carbonneau, ed. 1990).

commercial expectations of non-Western parties to international transactions will (or should) conform to Western practices. As Professor von Mehren once observed, Asian and Western parties to a commercial transaction may “both understand clearly the terms of the[ir] agreement,” but still “hold [entirely] different conceptions of [the meaning and legal effect of their] contract.”58 He also noted that, as a result of these differences, “it is difficult to predict whether a dispute [in such a transaction] will be settled by reference to legal standards or in terms of quite different conceptions.”59 I believe that Professor von Mehren was right on both counts, and that an understanding of these fundamentally different conceptions of law, contract, and dispute resolution is critical to the successful structuring of many Asian/Western commercial relationships.

A. The Traditional Role of Law in Asian Commercial Afairs

By and large, law simply was not relevant traditionally to private commercial relationships throughout Asia. 60 Asian nations tended to be public law regimes, in which law was an instrument of social control imposed by those in power and known by those to whom it applied only as an arbitrary source of duties and punishment.61 Unlike in the

58 Arthur T. von Mehren, Some Reflections on Japanese Law, 71 HARV. L. REV. 1486, 1494 n.25 (1958).

59 Id.

60 “Asia,” obviously, is rich in its diversity of nations, ethnic and racial identities, religions, customs, and traditions, and I am taking a great, and rather risky, liberty in speaking of “Asia” in a collective way. Geographically, I am referring only to the principal trading nations of East and Southeast Asia – China, Japan, Korea, Taiwan, Singapore, Indonesia, Malaysia, Vietnam, and the Philippines, with a heavy emphasis on the first three of these nations, due to their relative prominence in private international commerce. The primary characteristic that I am suggesting is common to these nations is the traditionally diminished role of law in the ordering and governance of private commercial affairs, in comparison to the West. This, I believe, is appropriate. See e.g., John Owen Haley, AUTHORITY WITHOUT POWER: LAW AND THE JAPANESE PARADOX 3 (1991) (“One can accurately substitute Korea or China for Japan for many observations [about the role of law in society].”)

61 See e.g., John Owen Haley, AUTHORITY WITHOUT POWER, supra note 60, at 19 (“Japan learned a Sinicized version of what law meant . [Law was viewed as] an instrument of government control serving the interests of those who exercised paramount political authority.”)

West, law was not a source of rights and entitlements that might be invoked by citizens for protection from government, 62 and law basically did not even pertain to the private sphere of commerce, which remained the affair of the parties involved.63 “Official law,” note Professors Bodde and Morris, “operated in a vertical direction from the state upon the individual, rather than on a horizontal plane directly between two individuals.”64 As Professor Haley has noted, “Conceptually, law meant the regulatory commands of those who ruled. There was no concept of law as a means of private, autonomous ordering.”65

It is little wonder then that law traditionally has been held in such “low regard” throughout Asia,66 greeted, for example, with “overt hostility” in China67 and thought “detestable” in Japan.68 Other values, which most Asians believed far more important and significant than law, traditionally governed the arrangement and performance of private commercial affairs. Whereas the West knew the primacy of law,69 Asia knew the primacy of interpersonal relationships.70 Asian commercial relationships were

state and of the nation, and had extended its reach even into private affairs, in China the laws had never been anything other than a collection of penal dispensations indispensable, but at the same time quite incapable in themselves of causing order to prevail.”)

62 See e.g., John Owen Haley, AUTHORITY WITHOUT POWER, supra note 60, at 21-22 (“The crux of Western law and all developed private law regimes is the concept of a legal right as a legitimate demand for state enforcement of a legal rule. Legal rights have little place, however, in public law regimes.”) and at 11 (“Law in China, Korea and Japan before the adoption of Western legal institutions did not require a concept of rights for enforcement. The word ‘law’ meant punishment. Legal rules were uniformly proscriptive. There were no rights, only duties.”).

63 See e.g., A.F.P. Hulsewe, The Legalists and the Laws of Chi’in, in LEYDON STUDIES IN SINOLOGY 2 (W.L. Idema, ed., 1981) (“[T]hrough the ages ‘law’ to the Chinese always meant public law

64 Derk Bodde and Clarence Morris, LAW IN IMPERIAL CHINA 4 (1967). See also John King Fairbank, CHINA 183-84 (1992), to the same effect.

65 John Owen Haley, AUTHORITY WITHOUT POWER, supra note 60, at 97.

66 Jerome Alan Cohen, Introduction, in ESSAYS ON CHINA’S LEGAL TRADITION, supra note 61, at 4.

67 See Bodde and Morris, LAW IN IMPERIAL CHINA, supra note 64, at 13.

68 See Yosiyuki Noda, The Far Eastern Conception of Law, 2 INTERNATIONAL ENCYCLOPEDIA OF COMPARATIVE LAW 120, 159-160 (1971) (“To an honourable Japanese the law is something that is detestable, something to keep as far away from as possible. To never use the law, or become involved with the law, is the normal hope of honourable people.”).

69 See notes 36 to 40 and accompanying text, supra.

70 See e.g., Stanley B. Lubman, Dispute Resolution in China After Deng Xiaoping, supra note 50, 11 COLUM. J. ASIAN L. at 375 (“A striking characteristic of Chinese legal culture has been the primacy of interpersonal relations over legal relationships.”)

“relational” in the same sense that Western commercial relationships are “legal.” The primacy of relationships in the governance of Asian commercial affairs, moreover, resulted in the development of a host of subsidiary values and expectations opposite of those that developed in the West: group interests prevailed over personal interests,71 situational and circumstantial considerations prevailed over contractual terms and expectations,72 conflict avoidance and negotiation or conciliation prevailed over all-ornothing adjudication,73 and, custom and usage (along with the rest of these values) prevailed over written law.74 Additionally, precisely because law was largely irrelevant to private affairs, and because law was associated disdainfully, when it did apply, with the arbitrary and personal whims and fancies of rulers, avoiding or disregarding law was not a matter of moral significance for most Asians, who shared none of the deistic references for law’s origin prevalent in the West.75 In fact, avoiding law and legal

ordering of personal and corporate relationships [and] a reticence to rely on law, whether contract or code, as the primary instrument of social ordering.”)

71 See e.g., Satjipto Rahardjo, Between Two Worlds: Modern State and Traditional Society in Indonesia, 28 LAW & SOC. REV. 493, 495 (1994) (“[T]he concept of aku (I, the self) in the Indonesian world embraces the whole community of which the individual forms a part, while in the West the pronoun represents just the individual. Within the Indonesian framework, conflict is alien, because conceptually there is no opposition between oneself and the group to which one belongs

72 See e.g., William Shaw, LEGAL NORMS IN A CONFUCIAN STATE x (1981) (commercial matters are judged situationally) and 16-17 (noting the “degree to which the distinction between ‘law’ and ‘circumstances’ remained a part of Korean jurisprudence’)

73 See e.g., John Owen Haley, AUTHORITY WITHOUT POWER, supra note 60, at 3 (noting as “characteristics” of Asian legal systems “avoidance of disputes, as well as mediation and conciliation in the settlement of disputes [and] a reticence to rely on law, whether contract or code “), and notes 93 to 107 and accompanying text, infra.

74 See e.g., Anthony Hulwese, Law as One of the Foundations of State Power in Early Imperial China, in FOUNDATIONS AND LIMITS OF STATE POWER IN CHINA 11, 14 (S.R. Schram, ed. 1987) (“[C]ustom and usage provided the unwritten rules for commerce [and] what in the West would be considered private law.”).

75 See e.g., John King Fairbank, CHINA 193 (1992) (“[T]he Chinese concept of law was fundamentally different from legal conceptions in the West. [T]he law was not regarded as an external and categorical element in society

obligations in these circumstances was far more understandable than blameworthy. Clearly, the “shared vision of justice” arising from the rule of law in the West76 did not extend to Asia.77 Further, this fundamentally different Asian conception of the role of law gave rise to contracting and dispute resolution practices that are significantly different from those that we know in the West.

B. Traditional Asian Contracting Practices

At first blush there seems to be significant inconsistency in the literature pertaining to traditional contracting practices in Asia. Portrayals range from a strong aversion to

reasoned from daily life without the aid of any deity. It followed that legal rules were but one expression of this morality. So the breaking of such rules was a matter of practical expedience rather than of religious principle. Laws were subordinate to morality [rather than supposedly reflective of it]. This system avoided the unhappy dualism that grew up in the West between the letter of the law and the dictates of commonsense morality.”)

76 See notes 30 to 36 and accompanying text, supra.

77 “The contrast is exemplified in the difficulty of accurately translating the word ‘justice’ into East Asian languages or, conversely, the Chinese word i [in Japanese gi] (roughly ‘righteousness’) into most Western languages. The English words ‘justice’ and even ‘righteousness’ reflect the fusion of law with notions of good and fair. Yet in traditional China and Japan, the characters commonly translated as ‘justice’ [seigi in Japanese], traditionally bear no relationship to law or legal terminology.” John Owen Haley,

AUTHORITY WITHOUT POWER, supra note 60, at 25-26. See also John King Fairbank, CHINA 185 (1992) (“Business relations [in China] were not cold impersonal matters governed by the general principles of law and of contract in a world apart from home and family. Business was a segment of the whole web of friendship, kinship obligations, and personal relations that supported Chinese life. [D]ue process of law, sanctity of contract, and free enterprise never became the sacred trinity that they became in the capitalist West.”).

I do not wish to suggest by this contrast that traditional Asian notions of “justice” are in some absolute sense “better” than Western notions of justice. As other observers have long pointed out, the primacy of relationships and group rights and status in the ordering of private affairs “tend[s] to preserve if not increase social inequalities, dependency relations, and the influence of those with social and economic power.” John Owen Haley, AUTHORITY WITHOUT POWER, supra note 60, at 23. See also Roderick W. Macneil, Contract Law in China: Law, Practice, and Dispute Resolution, 38 STAN. L. REV. 303, 385 (1986) (“The term ‘relations’ has special meaning in Chinese. It connotes ‘relationship’ in the sense of a long-term relationship with a friend or acquaintance, but it also connotes ‘connection,’ in the sense of being socially or politically well connected. It is not always used in the pejorative sense, but often has an instrumental, if not sleazy, flavor. The word is often used when someone does something that might be impossible without the help of the person with whom he has ‘relations. ‘”)

written contracts,78 to the use of written contracts but with a strong preference for indefinite and flexible terms,79 to the use of highly detailed written contracts very similar (facially, at least) to those we know in the West.80 Western contract negotiators today perhaps notice a somewhat analogous paradox in their contemporary Asian counterparts – comfortable attention to excruciating detail during the contract drafting process, sometimes followed, depending on how events unfold, by completely unashamed expectations of modifications and/or interpretive flexibility during performance. In my view, such an experience simply reveals the unifying theme underlying these seemingly inconsistent historical practices: the traditional Asian conception of a written contract (specific or indeterminate, as the case may be) is that it anticipates rather than defines the ensuing relationship. The contract memorializes not the “conclusion” of a business deal, as we are wont to describe a contract signing in the West, but the business relationship’s beginning.81

78 See e.g., Takeyoshi Kawashima, The Legal Consciousness of Contract in Japan (trans. Charles R. Stevens), 7 LAW IN JAPAN 1, 6 (1974) quoting a Tokyo District Court opinion for the proposition, “the existence is well-known of a custom in our country’s society that the drawing up of a written document incorporating the agreement is disliked,” and noting that, “even in the contracts of businesses of the largest scale there [are] many instances where written agreements are not drafted.” Id., at 15.

79 Dan Fenno Henderson, Preston M. Torbert, Xie Huaishi, Contract in the Far East – China and Japan, in INTERNATIONAL ENCYCLOPEDIA OF COMPARATIVE LAW 4 (Vol. 7, Arthur von Mehren, ed. 1992) (“The parties to an agreement are, prospectively at least, performance minded and interested in a sustained relationship. They are impatient with the implicit negativism of clever clauses and the lawyer’s emphasis on prospective victories in court.”), and Takeyoshi Kawashima, The Legal Consciousness of Contract in Japan, supra note 78, 7 LAW IN JAPAN at 16 (“An American who views Japanese contract documents will often wonder if he would become embroiled more easily in disputes [because the] contracts are ‘full of holes’ (kuhkuvdarake) . However, the way of thinking of Japanese businessmen is diametrically opposed to this. [They believe that] [i]f the obligations under the contract were made definite and fixed … [an] uneasiness [would arise] that such contracts would ‘lack flexibility’ (yuzusei ga naku naru). That is to say, indefinite contractual provisions that give a feeling of uneasiness to Westerners give a feeling of security to Japanese.”).

80 See e.g., Valerie Hansen, NEGOTIATING DAILY LIFE IN TRADITIONAL CHINA: HOW ORDINARY PEOPLE USED CONTRACTS 5-6 (1995) (“[S]ome scholars have studiously ignored [traditional Chinese] contracts that contradicted their vision of a harmonious, conflict-free society following the teachings of Confucius. This vision of Chinese society is belied by the strong propensity to use contracts to define relations with others, even family members.”)

81 See e.g., Roderick W. Macneil, Contract Law in China, supra note 77, 38 STAN. L. REV. at 327 (“[T]he Chinese regard contracts as relationships”) and 327, n.92 (noting “the Chinese concept of the contractual relation as an unfolding process”)

This fundamentally different conception of contract does not mean that the terms of a written contract are meaningless in the Asian tradition, but it does mean that the terms often are assigned a much lower value than Westerners ordinarily would assign with respect to their significance in the ordering and governance of a commercial relationship.82 For example, because the very notion of assigning firm consequences to conduct or events long before the conduct or events occur (if they occur at all) is counterintuitive to traditional Asian commercial practices, written contract terms professing such an exercise commonly are viewed as not carrying determinative weight.83

Reflections on Japanese Law, supra note 58, 71 HARV. L. REV. at 1494, n.25 (noting “the tendency to use legal forms – for example, the signing of a contract – [even] when the parties do not contemplate the regulation of the relationship thus initiated by formal legal standards, but rather seek a pattern of continuing association in which adjustment will be responsive to considerations the law [or contract] ignores.”)

82 One reasonably might question whether this statement is true of those nations of Southeast Asia where Islamic traditions are prevalent – Indonesia, Malaysia, and significant pockets of Singapore, Thailand, and the Philippines. The role of law and contracts in Islamic societies is far more similar to the Western tradition than it is to the traditions in non-Western societies. See e.g., Rene David and John E. C. Brierley, MAJOR LEGAL SYSTEMS IN THE WORLD TODAY, supra note 30, at 29-30 (“In the West, and in Islamic and Hindu communities [g]ood social order implies the primacy of law: men must live according to law and be prepared to fight for the supremacy of law . Law, a mirror of justice [is venerated]. [O]utside the law, there can be only anarchy, or arbitrariness .”), and H.A.R. Gibb, MOHAMMEDANISM: AN HISTORICAL SURVEY 88-106 (2nd ed. 1953) (“Sharia, Islamic law, differs from Western law in that it is, in theory, based on divine revelation, but it has inevitably been developed by the interpretations of scholars and jurists in a manner similar to Western law.”). Nonetheless, relational traditions have persisted in these societies and continue to strongly influence associational matters such as commerce. See e.g., Jane Collier, David Engel and Barbara Yngvesson, Editors’ Introduction, 28 LAW & SOC. REV. 417, 424 (1994) (“Waves of migration into Southeast Asia over many centuries brought new cultures, religions, and concepts of governance. Islam came to predominate in Malaysia, Indonesia, and parts of Thailand and the Philippines. However elements of indigenous practices and belief systems persisted.”)

83 See e.g., Arthur von Mehren, Some Reflections on Japanese Law, supra note 58, 71 HARV. L. REV. at 1496 (“Japanese society does not wholeheartedly accept that a high degree of predictability is to be

Instead, there frequently is a strong expectation that relational and circumstantial considerations will prevail over (or at the very least, qualify and inform) specific written contract terms in determining the response of commercial parties to various events and contingencies as their relationship unfolds.84 Mutual adjustment and accommodation is expected.85 The process of adjustment and accommodation, moreover, is much more than “some ill-defined promise of good faith.”86 Instead, it reflects reciprocal selfinterest: “The great art is to give way (jang) on certain points, and thus accumulate [a] fund of merit whereby one can later obtain advantages in other directions.”87

A core term of many Asian commercial contracts – the “friendly negotiations” or “confer in good faith” clause – captures the essence of contractual obligation in the Asian tradition.88 Such clauses typically recite that, if differences or disputes arise during the course of the contractual relationship, the parties will discuss and resolve the matter amicably.89 The Western view of such clauses is that they impose no real obligation at all

assured as to the consequences of particular conduct long before the conduct has occurred .”)

84 See notes 70 to 73 and 81, supra. See also e.g., Rosser Brockman, Commercial Contract Law in Late Nineteenth-Century Taiwan, in ESSAYS ON CHINA’S LEGAL TRADITION, supra note 61, at 89 (“[A]chieving justice in the circumstances of the individual case was more important than rigid adherence to the letter of the [contract].”).

85 See note 81, supra.

86 Rosser Brockman, Commercial Contract Law in Late Nineteenth-Century Taiwan, in ESSAYS ON CHINA’S LAGAL TRADITION, supra note 61, at 79.

87 Jerome Alan Cohen, Chinese Mediation on the Eve of Modernization, 54 CALIF. L. REV. 1201, 1207 (1966), quoting Jean Escarra, LE DROIT CHINOIS 17 (1961). See also Stanley B. Lubman, Dispute Resolution in China After Deng Xioaping, supra note 50, 11 COLUM. J. ASIAN L. at 291 (noting the current endorsement by official Chinese mediation committees of “the traditional Chinese value of “yielding’ (rang),” which is “central to the most widely used style of mediation, ‘mediation concurrently using law and feeling.'”)

88 See e.g., Yosiyuki Noda, The Character of Japanese People in their Conception of Law, supra note 75, THE JAPANESE LEGAL SYSTEM at 310-310 (“[C]ontracts drawn up by large Japanese trading companies invariably contain a ‘good faith clause’ or an ‘amicability clause.'”), and Takeyoshi Kawashima, The Legal Consciousness of Contract in Japan, supra note 78, 7 LAW IN JAPAN at 18 (“[T]he confer-in-good-faith clause is the core of our country’s contracts.”).

89 Typical clauses recite that, in the event of a dispute, the parties “will confer in good faith (sei-i o motte kyogi suru)” or “will settle the dispute harmoniously by consultation (kyogi ni yori emman ni kariketsu suru)”, (see Takeyoshi Kawashima, The Legal Consciousness of Contract in Japan, supra note 78, 7 LAW IN JAPAN at 16), or that “the parties will settle the matter amicably by mutual discussion” (Dan Fenno Henderson, CONCILIATION AND JAPANESE LAW, supra note 12, at 194).

novation,90 or perhaps an initial formality in a multiple-step dispute resolution process culminating eventually in compulsory adjudication intended to enforce precise contractual terms. But these views presuppose a Western understanding of the contract itself, which is not shared in Asia.91 From a traditional Asian perspective, a “confer in good faith” or “friendly negotiation” clause represents an executory contractual promise no less substantive in content than a price, payment, or delivery term. It embodies and expresses the traditional Asian supposition that the written contract is tentative rather than final, unfolding rather than static, a source of guidance rather than determinative, and subordinate to other values – such as preserving the relationship, avoiding disputes, and reciprocating accommodations — that may control far more than the written contract itself how a commercial relationship adjusts to future contingencies. Characterizing a “confer in good faith” or “friendly negotiation” clause as a “dispute resolution” clause tempts a misapprehension of this essential nature, for no “dispute” exists if all of the parties to the contract share an Asian understanding of its evolving and responsive (through good faith conferences and friendly negotiations) nature.92

C. Traditional Asian Dispute Resolution Practices

This understanding of “friendly negotiation” and “confer in good faith” clauses, however, does not mean that real disputes do not arise in Asian commercial relationships. Just as the written contract defines the parameters of reasonable behavior in a Western commercial relationship, so too does the contract, together with the relational values I have discussed, define the boundaries of reasonable commercial behavior in Asian commercial relationships. The nonperformance of obligations, or performance outside of these values, or refusals to adjust to reasonable demands due to changing circumstances, or unreasonable demands for adjustment, all can give rise to disputes in Asian commercial relationships no less serious and potentially destructive of the mutual enterprise than those that arise in the West. Both the process by which the dispute is resolved, and the values that inform its resolution, however, once again are fundamentally different in Asian traditions from those that we know in the West. Just as contracts are relational in Asian traditions, so too is commercial justice.93

The primacy of relational values in Asia contributed traditionally to a significant aversion to seeking outside assistance with the resolution of private disputes. Great

90 Cf. e.g., Dan Fenno Henderson, CONCILIATION AND JAPANESE LAW, supra note 12, at 195 (“From a legal point of view, the [Western] party may regard [such clauses] as nothing more than an unnecessary agreement to agree on future changes, if they should be considered advantageous at the time

91 See notes 81 to 86 and accompanying text, supra.

92 See e.g., Roderick W. Macneil, Contract Law in China, supra note 77, 38 STAN. L. REV. at 396 (“[T]he Chinese see the institution of contract, resolution of contract disputes, and contract law as different parts of an integrated whole. [T]his has not been the case in the United States.”), and Gidon Gottleib, Relationalism, supra note 81, 50 U. CHIC. L. REV. at 568 (“the character of juridical activities in relational societies” includes “the negotiation and renegotiation of juridical instruments accepted [in the West] as binding.”).

93 See e.g., Dan Fenno Henderson, CONCILIATION AND JAPANESE LAW, supra note 12, at 174 (noting that in Confucian philosophy, “[j]ustice [is] relational.”).

shame accompanied resort to third-party adjudication,94 and the source of the shame was twofold. First, the pursuit of compulsory adjudication involved an unseemly emphasis on private interests in societies where individual interests always were subordinate to those of the group

Consistent with the subordination of written law and contracts in the ordering of commercial affairs, and with the commensurate elevation of relational considerations such as status, harmony, reciprocal adjustment, and actual circumstances, the objective of dispute resolution in traditional Asia was not the ascertainment of legal rights and the allocation of blame and entitlement, as it is in the West

94 See e.g., Jacque Gernet, Introduction, in FOUNDATIONS AND LIMITS OF STATE POWER IN CHINA, supra note 60, at xxiv (“It was shameful [in Chinese tradition] to call on the courts to settle one’s differences .”)

95 Dan Fenno Henderson, CONCILIATION AND JAPANESE LAW 174-175 (Vol. I, 1965) (“[P]rivate suits over money and property were thought to derive from an immoral emphasis on private, rather than group interests. Throughout Japanese history the imbalance in favor of the group over the individual has been symbolized by the word for Public (oyake), which has had a moral content[,] as opposed to Private (watakushi), which indicates self-interest with an implication of illegitimacy.”).

96 See e.g., Phillip M. Chen, THE LEGAL SYSTEM IN CHINA 2400 B.C. TO 1960 A.D. at 4 (1973) (“[I]f you are the aggrieved, going to court is an admission that the other party does not have sufficient respect for you to settle properly outside of court. It is, therefore, an admission of lost face.”), and Jerome Alan Cohen, Chinese Mediation on the Eve of Modernization, 54 CALIF. L. REV. 1201, 1208 (1966) (“A lawsuit caused on to ‘lose face’ since it implied either some falling from virtue on one’s own part or, what was also embarrassing, the failure to elicit an appropriate concession from another as a matter of respect for one’s own ‘face.'”). See note 115, infra, for citations to scholars whose work suggests that traditional aversions to public litigation may have resulted more from structural than cultural factors.

97 See notes 41, 42 and 50 and accompanying text, supra

reconciliation, whatever the result.98 The merits of the outcome were not irrelevant, but “merits” in the Asian tradition had far more to do with relative status, actual circumstances, reciprocal adjustment, and maintaining the relationship than they did with the terms of any contract or law antecedent to the dispute.99 One might correctly describe a parallel between Western and Asian commercial dispute resolution insofar as the objective of each is to achieve the “expectation interests” of the parties, but the comparison would convey a falsehood if the completely different content of the expectations were not noted as well. Asian commerce is as dependent as Western commerce on the “predictable” resolution of disputes

This version of commercial justice requires dispute resolution techniques and procedures different from those best suited to yield the “legally correct” outcomes favored by the Western legal tradition. Mediation and conciliation, for example, traditionally have been preferred strongly over arbitration or other compulsory adjudication for the resolution of commercial disputes precisely because they are more likely, if successful, to provide a basis on which to continue the commercial relationship.101 Even judges and arbitrators charged with the adjudication of disputes in

98 See e.g., John Owen Haley, AUTHORITY WITHOUT POWER, supra note 60, at 23 (“for private disputes, the authorities were concerned with peaceful resolution, whatever the result, not the enforcement of particular rules or norms of behavior.”)

99 See e.g., Roderick W. Macneil, Contract Law in China, supra note 77, 38 STAN. L. REV. at 375 (“The situational norm favors taking the parties situation at the time of the dispute, rather than at the time of their ‘original’ agreement, as the basis for resolving the dispute.”)

100 See notes 31 to 36 and 57 and accompanying text, supra.

101 Stanley B. Lubman, Dispute Resolution in China After Deng Xioaping, supra note 50, 11 COLUM. J. ASIAN L. at 295-96 (“Mediation is deeply rooted in traditional Chinese culture because it emphasizes the desirability of maintaining personal relationships. [P]eople do not want to use law to handle ordinary disputes and [thereby] injure relationships. Mediation offers opportunities for face-saving compromise as an alternative to an all-or-nothing outcome.”)

Asia routinely make intermittent efforts to mediate the disputes, meeting privately with each party and engaging in ex parte communications, and they see no particular problem with resuming their adjudicative role – and perhaps even imposing an outcome based on information they learned during mediation – if their efforts to mediate fail.102 This conduct, of course, is alien to conventional Western notions of judicial impartiality,103 but perfectly consistent with Asian notions of the values and objectives that should govern the resolution of commercial disputes.

Relational considerations also make privacy an essential aspect of Asian commercial dispute resolution traditions, at least in nonjudicial contexts. Privacy, of course, is an aspect of international commercial arbitration in the Western tradition as well, but it clearly is valued more highly in Asia.104 For example, the privacy of commercial arbitration offers a reduction in the humiliation and loss of face traditionally associated with seeking outside assistance for the resolution of disputes.105 Privacy also promotes intermittent mediation and conciliation, the preferred mechanisms of dispute resolution in Asia.106 And whether in the context of mediation and conciliation or arbitral adjudication, private proceedings are far more conducive than public proceedings to the sorts of wide-ranging and often proprietary discussions that might lead to the preservation of an imperiled commercial relationship. Similar considerations also explain the importance in Asian dispute resolution traditions of arbitral discretion not to issue written opinions explaining their decisions and awards

conciliation”)

102 See e.g., Pittman B. Potter, FOREIGN BUSINESS LAW IN CHINA 70 (1995) (“courts and arbitral bodies routinely engage in conciliation during the course of litigation and arbitration proceedings”)

103 See e.g., J.D. Fine, Continuum or Chasm: Can West Meet East?, 6 J. INT’L ARB 27, 30 (1991) (“[A] mediator play[s] a role fundamentally repugnant to, and inconsistent with, that ascribed by law to the traditional Anglo-Australian arbitrator. [For the same individual to serve both as mediator, and then, if unsuccessful, as arbitrator is] fundamentally contrary to the requirements of natural justice.”).

104 Consider, for example, the regular calls of Western commentators for greater transparency in international arbitrations, for the publication of written arbitral awards and opinions, and for the general imposition in international arbitrations of more public judiciary-like characteristics. See notes 52 to 57, supra, and accompanying text.

105 See notes 95 and 96 and accompanying text, supra.

106 See notes 101 and 102 and accompanying text, supra.

blamelessness more appropriately attend “legally correct” outcomes, not relational ones, and the failure of commercial relationships, not their resurrection.107

In sum, traditional Asian beliefs and practices with respect to the role of law and contracts in the ordering and governance of private commercial affairs are fundamentally different from those of the Western legal tradition. The primacy of law and its moral force in the West becomes the primacy of relational values and situational ethics in the East. Inflexible, “deal closing” written contract terms in the West become seemingly elastic, “relationship beginning” predictions in the East. The procedural regularity and judicial impartiality essential to legally correct commercial justice in the West become the procedural irregularity and ex parte mediation essential to relational commercial justice in the East.

What’s more, these “traditional” Asian beliefs and practices have currency. One might suspect otherwise given the long duration and extensive scope of Westernizing commercial law reform throughout Asia. The establishment of Western-style legal systems has long been perceived by Asian nations as a condition of significant trade and commerce with the West. Japan’s Meiji Era (circa 1868 to 1911) enactment of mostly German codified law, for example, clearly was aimed at an American and European audience,108 as were China’s Westernizing legal reforms both at the turn of the 19th century and during the last decade.109 The same essentially is true of commercial law

107 As I explained in note 77, supra, I do not intend my depiction of this contrast to suggest a preference for Asian over Western outcomes, for without the “equalizing” effects of law, relational outcomes clearly will tend to preserve, rather than address, any social and/or economic inequities that might be present in any given relationship. However, such outcome-determinative disparities are less likely to occur in the world of cross-border commerce, and the deep Asian preference for relational justice and dispute resolution mechanisms exists in that context as well.

108 See e.g., Dan Fenno Henderson, CONCILIATION AND JAPANESE LAW, supra note 12, at 188-189 (“Meiji political authorities resented th[e] feature in [early treaties between Japan and the United States and various European nations that extended extraterritoriality to foreign citizens in Japan], and by the late 1870’s it had become a major goal of successive Japanese foreign ministers to negotiate new treaties in which the western nations would relinquish their extraterritorial rights. Before the western nations would agree to subject their nationals to Japanese law and courts, it was necessary for Japan to reconstruct its whole formal legal system [which] was accomplished by 1899, and in the same year the new western treaties relinquishing extraterritoriality became effective. The resulting statutory changes [in Japan] amounted to a monumental reception of foreign codified law, mostly German.”), and Hiroshi Wagatsuma and Arthur Rosett, Cultural Attitudes Toward Contract Law: Japan and the United States Compared, 2 UCLA PAC. BASIN L. J. 76, 81 (1983) (“[T]he [commercial] codes adopted during the nineteenth-century Meiji Revolution were not derived from subsisting Japanese business practice. Instead they were imposed from the outside in an effort to meet the perceived demands of the new economic and political order . Introduction of [the] codes was not aimed primarily at the internal audience of businesspersons but at an external audience of foreigners who had to be persuaded that the Japanese were ‘civilized. ‘”).

109 See e.g., Jianfu Chen, Market Economy and the Internationalisation of Civil and Commercial Law in The People ‘s Republic of China, in LAW, CAPITALISM, AND POWER IN ASIA 69 at 76 and 81-82 (1999) (“Internationalising Chinese law, in the sense of transplanting foreign (Western) laws, started, not in the 1990s, but at the turn of the [19th] century when modern legal reform was imposed by the Western powers as a prerequisite and as an incentive for relinquishing the extra-territoriality then enjoyed by these powers in China. [81-82] If the admission of the usefulness of foreign law and international practice in building a Chinese legal system in the 1980s was dubious and thus prone to different interpretations, the language in the 1990s has been unambiguous. Now, deputies to the National Congress have called for bold

enactment in Korea110 and the nations of Southeast Asia.111 The enactment of Westernstyle commercial laws throughout Asia, moreover, has been accompanied by the creation and proliferation of public courts, a growing legal profession, the widespread use of written contracts, and a significantly increased resort to compulsory adjudication for the resolution of commercial disputes.112 Yet, observers are virtually unanimous in their description of a normative “gap” throughout these nations between their Western-style commercial codes and legal institutions, on the one hand, and the actual commercial practices and expectations of their citizens, on the other. 113 Although the dichotomy is

absorption of foreign laws . Many long-awaited [commercial] codes have now all been adopted. Thus, Western scholars now easily find their familiar language in Chinese law, because Chinese law, in its forms, structure and methodologies, has become undoubtedly Western.”), and Peter H. Corne, FOREIGN INVESTMENT IN CHINA: THE ADMINISTRATIVE LEGAL SYSTEM 1 (1997) (“[A] legal system acceptable to foreign investors has become a key factor in attracting Western support.”).

110 See e.g., William Shaw, Traditional Korean Law and Its Relation to China, in ESSAYS ON CHINA’S LEGAL TRADITIONS 302, 318, supra note 61, and Jae Yeol Kwan, Diferences Between the Commercial Codes of the United States and Korea, 29 LOY. L.A. L. REV. 1095, 1103-1106 (1996).

111 See e.g., Jianfu Chen, Market Economy and the Internationalisation of Civil and Commercial Law, supra note 109, at 69 (“Globalisation and internationalization of law in developing countries means, predominantly, the transplanting of Western laws.”)

112 Of course, Japan’s courts and legal institutions and their popular use are well established and longstanding. With respect to the other nations of East and Southeast Asia, see e.g., Lucie Cheng and Arthur Rosett, Contract With a Chinese Face: Socially Embedded factors in the Transformation from Hierarchy to Market, 1978-1989, 5 COLUM. J.ASIAN L. 143, 197-205 (1991) (documenting the growth of legislation, courts, the legal profession, and legal education in modern China)

113 See e.g., Peter H. Corne, FOREIGN INVESMENT IN CHINA, supra note 109, at 3 (noting the “normative gap” that results from “the new found [Western] legal structures adopted in China that lack roots in local custom”)

more subtle and complex than rigid, it is clear that commercial practices throughout Asia, even in cross-border and cross-cultural East/West contexts, frequently remain strongly influenced by traditional relational conceptions that subordinate the role of law and contracts in the structure and governance of commercial relationships.114

Whether or not these Asian conceptions eventually succumb to Westernizing influences regarding the primacy of law and contracts is largely academic in comparison to the decades or more within which commercial parties from these different traditions must confront the question of whether contract and dispute resolution mechanisms exist

Today, we see that this is not the case

114 See e.g., Dan Fenno Henderson, The Japanese Law in English: Some Thoughts on Scope and Method, 16 VAND. J. INT’L L. 601, 607-612 (1983) (“[The Japanese now have “hundreds of years of experience with imported western justiciable law [and] the legal literature produced during this period – treaties, commentaries, and case law – is voluminous, systematic, and refined. [Nonetheless], [t]he mix of social and legal institutions remains subtle and elusive to the comparative lawyer with little exposure to Japanese society. [E]ven today, the role of law in Japanese society is minimized.”)

that are capable of a successful accommodation.115 Perhaps the answer is “no”

Current practice, by and large, seems to be to ignore these fundamentally different conceptions and then to profess astonishment and disbelief at their existence if a dispute arises, perhaps selecting arbitrators in anticipation of a cultural clash. Another option sometimes invoked by Western lawyers on behalf of Western clients is to acknowledge the different conceptions but then to employ contract drafting techniques, such as explicit recitals of the contract’s primacy combined with air-tight merger, choice-of-law, and dispute resolution clauses, designed to “Westernize” the legal relationship for purposes of

115 I have laid out traditional Asian commercial contracting and dispute resolution beliefs and practices without assessing the underlying question of their origin. Much of the literature suggests that these practices originate in embedded cultural values, such as Confucianism, religious influences, and clan and familial custom. Some more recent scholarship suggests that these practices simply reflect institutional constraints, and that when institutional capacity increases – e.g., government services, courts, law enforcement, the legal profession, etc. – so too will Western-style practices consistent with the primacy of law and contracts. See e.g., Fu Haling, Understanding People ‘s Mediation in Post-Mao China, 6 COLUM. J. ASIAN L. 211, 217-218 (1992) (“Intending to demystify the myth of Chinese non-litigiousness and cultural aversion to formal mechanisms of adjudication, scholars argue that the behavior of Chinese cannot be explained by culture alone. [As] James Seymour concludes: ‘the Chinese are fully inclined to assert their rights when institutions are available for that purpose.’ [citing James D. Seymour, Cadre Accountability to the Law, 21 AUSTL. J. CHINESE AFF. 1, 18 (1989)]”). See also, Haley, AUTHORITY WITHOUT POWER, supra note 60, at 108 to 119

any eventual dispute. But this approach to such fundamentally different conceptions of law and contract hardly can be considered a preferred outcome, even from a Western perspective, given the growing importance of Asian-Western economic exchange and the necessity of its ongoing success. The primary objective of contract drafting should be the success of the commercial relationship, not simply the advantage of one party or the other in the event of its failure. Lawyers and commercial parties confronting Asian-Western transactions must strive to create and articulate contractual terms and mechanisms that reflect the actual subjective expectations of the parties with respect to the legal consequences of the drafting effort.

Part III. Accommodating Different Conceptions Regarding the Role of Law and Contracts in the Structure and Governance of Commercial Relationships

My initial focus in the following discussion will be on the capacity of international commercial arbitration – by far the preferred method of dispute resolution in international transactions — to accommodate the often different expectations of Asian and Western parties to commercial transactions. Although under assault of late by those who desire to “Westernize” its procedures, the institution of international arbitration originally was designed purposefully to avoid any preordained notion of how differences between parties from different nations or legal traditions should be addressed and resolved. I will consider whether this original design is susceptible of manifestations capable of facilitating commercial relations between parties from legal traditions so fundamentally different that law and contracts are determinative of outcomes in one but subordinate to other values in the other. I then will consider whether certain substantive standards of decision-making (i.e., contractual choices of “law”), such as amiable composition, ex aequo et bono, and lex mercatoria, possess the same capacity. Finally, I will briefly explore whether certain other contractual terms, such as variable performance parameters in combination with explicit good faith and meet-and-confer requirements, also might be employed to help effect an accommodation between Western commercial traditions and the non-Western traditions of Asia. From a Western perspective, each of these possibilities clearly increases risk in a commercial relationship to the extent that “risk” in the West is perceived as the likelihood of divergence from some precise, preordained contract-based expectation or standard of conduct

A. Rethinking International Commercial Arbitration

The New York Convention provides a legal framework for international commercial arbitration that offers two features critical to the potential accommodation of non-Western traditions and expectations in international commercial relationships: the virtually complete autonomy of parties to international commercial transactions to design dispute resolution procedures and mechanisms unconstrained by the peculiarities of national laws and practices, and, the assurance that arbitral awards rendered pursuant to those procedures and mechanisms will be reliably recognized and enforced in virtually all

of the world’s major trading nations.116 A third feature of international legal practice critical to the accommodation of non-Western traditions and expectations, which I discuss in Section III.B, below, is the increasingly unfettered autonomy of parties to international commercial transactions to freely designate whatever law or decisional rule they wish to apply to their dispute, to the exclusion of otherwise applicable law. In combination, these three features of international commercial legal practice offer the potential of new paradigms of dispute resolution capable of respecting and accommodating the traditions and practices of non-Western participants in international commercial transactions, consistent with the success of the transactions for all parties.

The autonomy of parties to design their own dispute resolution procedures and mechanisms unconstrained by national laws and practices arises from the combined effect of the New York Convention and the national arbitration law of the jurisdiction that hosts the arbitration. The New York Convention itself imposes no particular requirements on the dispute resolution procedures and mechanisms employed in any given international commercial arbitration,117 other than indirectly by permitting contracting states to refuse to recognize and enforce foreign arbitral awards that are rendered without basic procedural fairness (i.e., party notice and an opportunity to be heard) or in violation of the parties’ arbitration agreement or some fundamental public policy.118 Otherwise, enforcing jurisdictions essentially are obliged by the Convention

116 The “New York Convention” is the CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS, June 10, 1958, 21 U.S.T. 2518, 330 U.N.T.S. 38 [hereinafter, New York Convention]. Nations that accede to the New York Convention agree essentially to refer to arbitration any commercial case filed in their courts that is subject to a written arbitration agreement (art. II(3)), and to recognize and enforce foreign arbitral awards unless they are infirm for one of a very limited number of reasons specified in the Convention (art. V). See notes 117 and 122, infra, for further elaboration of these principles. 123 nations (including all eligible major trading nations of Asia – i.e., China, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Thailand, and Vietnam, but not Taiwan) have acceded or succeeded to the New York Convention as of March 31, 1999. See the UNCITRAL (United Nations Commission on International Trade Law) website (http://www.un.org.at/uncitral) for a continually updated list of contracting states. I elaborate on the two features of international commercial arbitration I mention in this sentence in the following paragraph, above.

117 I am using “international commercial arbitration” broadly to encompass any dispute resolution mechanism, including negotiations, conciliation and mediation, that might result in an arbitral “award” enforceable pursuant to the New York Convention. It is typical in international practice, for example, for disputing parties to embody their negotiated or mediated resolution in an “arbitral award” because of the international currency the settlement then has in terms of its enforceability. Most rules of international commercial arbitration expressly contemplate and permit this practice. See e.g., UNCITRAL ARBITRATION RULES, art. 34(1).

118 Article V of the New York Convention specifies the only grounds on which a contracting nation “may” refuse recognition or enforcement of a foreign arbitral award. The grounds include, and I shall paraphrase, the legal incapacity of a party or invalidity of the arbitration agreement (art. V.1.a), the failure to provide the unsuccessful party with notice and an opportunity to be heard (art. V.1.b), the rendering of an award that exceeds the scope of the arbitration agreement (art. V.1.c), the arbitral procedure or composition of the tribunal did not comply with the parties’ agreement or the law of the hosting jurisdiction (art. V.1.d), the award already has been set aside by “the country in which, or under the law of which, th[e] award was made (art. V.1.e), the subject matter of the award is not capable of arbitration in the enforcing jurisdiction (art. V.2.a), and, recognizing or enforcing the award would violate the enforcing jurisdiction’s public policy (art. V.2.b). New York Convention, supra note 116, art. V.

not to judge either the procedures or outcomes of international commercial arbitrations.119 And although the New York Convention permits nations hosting international commercial arbitrations to impose whatever procedural or substantive requirements they wish on arbitrations conducted within their borders,120 the fact is that relatively few nations any longer impose any requirements on international arbitrations occurring within their borders, preferring instead to compete for the business of hosting arbitrations by ensuring the greatest scope of party autonomy possible. 121 Thus, jurisdictions are readily available at the parties’ election to host arbitrations completely unconstrained by national legal requirements.122 The result of this combined effect of New York Convention constraints on enforcing jurisdictions and modern national arbitration laws in hosting jurisdictions is international arbitration’s unconstrained potential as a perfectly flexible and neutral dispute resolution mechanism without any preordained procedural, evidentiary, presentational, or adjudicative requirements affecting the eligibility of resulting arbitral awards for recognition and enforcement in virtually all of the world’s major trading nations.123

To date, however, this potential lies largely unexploited, with parties to international transactions typically acquiescing in the routine application of institutional

119 In most nations that have confronted the issue, the “public policy” ground for permissibly refusing recognition or enforcement of a foreign arbitral award (id., art. V.2.b), has been interpreted narrowly to foreclose review of errors of fact or law. See e.g., Parsons & Whittemore Overseas Co. v. Societe General De L’Industrie du Papier (Rakta), 508 F.2d 512 (2d Cir. 1974)

120 See e.g., W. Laurence Craig, Some Trends and Developments in the Laws and Practice of International Commercial Arbitration, 30 TEX. INT’l L.J. 1, 11 (1995) (“The Convention provides no restraint whatsoever on the control functions of local courts at the seat of arbitration”).

121 See generally Philip J. McConnaughay, The Risks and Virtues of Lawlessness: A “Second Look” at International Commercial Arbitration, 93 Nw.U. L. Rev. 453, n.31 at 462 and 463-467 (1999) and sources cited therein, and William W. Park, National Law and Commercial Justice: Safeguarding Procedural Integrity in International Arbitration, 63 TUL. L. REV. 647, 689-90 (1989) (“Vying for a greater share of the fees paid to arbitrators and attorneys at the seat of the arbitration, the marketing strategy of these nations includes legislative reform of arbitration law to create a more laissez-faire standard of review for international arbitration, perceived by these nations as attractive to some arbitral consumers.”).

122 I should note as well that, even if the parties to an arbitration selected a host jurisdiction that did impose procedural or substantive requirements on the arbitration, and even if that jurisdictional subsequently annulled or set aside the resulting arbitral award for noncompliance with those requirements, that award still might be enforceable if another jurisdiction refused to honor the initial annulment or set aside. See e.g., In re Arbitration of Certain Controversies between Chromalloy Aeroservices v. The Arab Republic of Egypt, 939 F. Supp. 907 (D.D.C. 1996) (enforcing award against The Arab Republic of Egypt which had been set aside by Egyptian courts at the seat of the arbitration), and Hilmarton v. OTV, Cass. Le civ., March 23, 1994 (in which the French Cour de Cassation enforced an award rendered in Switzerland despite the award having been set aside in Switzerland). My point here is simply that party autonomy to design arbitral procedures largely unburdened or constrained by national laws is essentially available for the asking in international commercial transactions.

123 See notes 116 and 117, supra. I should note that a nation acceding to the New York Convention also may make two explicit reservations permitting it to refuse recognition and enforcement of foreign arbitral awards that do not deal with “commercial” matters and/or that are not rendered in another New York Convention contracting state. New York Convention, art. I(3).

arbitration rules that tend to promote Western adjudicative procedures, even though the institutional rules themselves typically permit the waiver of their principal provisions in favor of alternatives created by the parties.124 “The typical arbitration,” write Professors Rau and Sherman, “is conducted in a formal adversary hearing unadulterated by techniques associated with conciliation or ‘alternative dispute resolution. ‘”125 Moreover, instead of exploring the potential of international arbitration’s almost unlimited flexibility, most leading scholars of international arbitration have attacked it, apparently upset by the probability that flexible procedures will yield arbitral awards not adhering strictly to Western notions of “legal predictability” and commercial justice. The need for “control mechanisms” has become their rallying cry,126 and their litany of “corrective” changes to international commercial arbitration includes the replacement of arbitral privacy by greater transparency,127 the standardization of procedural and evidentiary rules,128 the elimination of equitable decision-making and strict adherence to law,12 9 strict arbitrator impartiality,130 the publication of reasoned arbitral awards,131 strict adherence to stare decisis,132 increased judicial supervision of arbitration,133 and generally, the adoption of any similar measures necessary to ensure “legally proper” results. 134 Parties to international commercial arbitrations may be seeking the neutral adjudication of their claims, explains Professor William Park, but they are “not opting for the abandonment of legal rules.”135

124 See e.g., ARBITRATION RULES OF THE SINGAPORE INTERNATIONAL ARBITRATION CENTRE Rule 16 (“The parties may agree on the arbitral procedure, and are encouraged to do so.”) (1991), and ICC RULES OF ARBITRATION arts. 6(4), 7(6), 16, 17 and 23 (1998).

125 Alan S. Rau and Edward F. Sherman, Tradition and Innovation in International Arbitral Procedure, 30 TEX. INT’L L.J. 89, 91 (1995).

126 See generally e.g., W. Michael Reisman, SYSTEMS OF CONTROL IN INTERNATIONAL ADJUDICATION AND ARBITRATION (1992)

127 See note 52, supra.

128 See note 53, supra.

129 See note 54, supra. See also e.g., William W. Park, Control Mechanisms, supra note 125, LEX MERCATORIA AND ARBITRATION at 109 (‘[T]he healthy elaboration of transnational economic norms requires judicial control mechanisms to insure that arbitral awards purporting to be based on lex mercatoria represent more than the arbitrator’s personal notions of justice.”) and Volker Triebel, The Choice of Law in Commercial Relations: A German Perspective, 37 INT’L & COMP. L. Q. 935, 941 (1988) (“I submit that lex mercatoria is too ill-defined and uncertain to act as an effective choice of the proper law of contract.”).

130 See note 103, supra.

131 See note 55, supra.

132 See note 56, supra.

133 See e.g., William W. Park, Control Mechanisms, supra note 125, LEX MERCATORIA AND ARBITRATION at 109.

134 See generally sources cited in note 125, supra, and Martin Domke, COMMERCIAL ARBITRATION

14 (1965) (noting that the “principal challenge” facing commercial arbitration is achieving “predictability of result”).

135 William W. Park, Control Mechanisms, supra note 125, LEX MERCATORIA AND ARBITRATION at 115 (emphasis added).

I prefer the formulation of international commercial arbitration’s purpose offered by the late eminent French comparativist Professor Rene David, who explained, in a way that is far more open to and encompassing of the interests of parties from non-Western traditions, that the real purpose of international arbitration is “not to apply law, but to function as a remedy against its insufficiency.”136 Clearly, law and contracts are deficient as the singular basis on which to determine the outcomes of commercial disputes involving parties whose expectations have been shaped by non-Western commercial practices and traditions

The precise dispute resolution paradigms that emerge from attempts to accommodate Western and non-Western traditions within the context of international arbitration’s almost limitless capacity to assimilate new forms of enforceable adjustment and adjudication surely will vary according to the circumstances of each transaction and industry and the willingness of commercial parties to explore trade-offs between traditional notions of “legal certainty” and new possibilities of commercial stability. One can imagine, for example, initial attempts at procedural accommodations that simply replicate conventional multi-tiered dispute resolution, with efforts to resolve differences through formal party discussions moving on, if unsuccessful, to mediation and eventually to compulsory adjudication, with different third parties handling mediation and adjudication responsibilities. The degree to which such a procedure actually effects an accommodation, however, likely will turn as much on the decisional standard that ultimately governs the adjudication, which I discuss in Section III. B, below, as it does on the attempt to create procedural incentives that promote “mutual adjustment.” Nonetheless, success with procedural adjustments of this incremental variety might lead to more bold experiments with the authority of arbitrators, entrusting them with the dual, and perhaps interchanging, roles of mediator and arbitrator, as frequently occurs in the East but not in the West, where such duality contravenes traditional notions of

136 Rene David, CONTEMPORARY PROBLEMS IN COMPARATIVE LAW 33 (1962), as quoted in Jerzy Jakubowski, Reflections on the Philosophy of International Commercial Arbitration and Conciliation, in THE ART OF ARBITRATION 175, 178 n.14 (Jan C. Schultz and Albert Jan van den Berg, eds., 1982).

137 See Part II of this article, supra.

impartiality. Or perhaps new ideas will emerge about arbitrator qualifications and selection with different types of stature and expertise assuming prominence, or about the role and authority of experts as ongoing or interim participants in dispute resolution. Significant presentational changes also might emerge, in both form and substance, as a result of shifts in decisional emphases from law and contract to exigency and circumstance, and from unilateral entitlement to reciprocation. Fundamentally different notions of appropriate outcomes, final awards, and the scope of judicial review might follow.

The extent to which these unexplored procedural variations are created and tested in actual practice likely will depend in large part, as I have noted, on the extent to which they are occasioned and accompanied by changes in the decisional standards that govern the outcomes of commercial confrontations between Western and non-Western traditions and expectations. That issue requires a rethinking of contractual choice of law.

B. Rethinking Contractual Choice of Law

Unlike party autonomy to design new arbitral and dispute resolution processes, the autonomy of parties to international contracts to designate the law that will apply to their relationship is neither untested nor under-exploited. To the contrary, party autonomy to contractually designate applicable law to the exclusion of otherwise applicable law is as well-established as its scope is expansive,138 no longer restricted, in most cases, to the selection of laws bearing a relationship of some sort to the parties or their transaction,139 and sometimes even extending into the realm of public regulatory law.140 Moreover, in

138 See generally, Peter Nygh, AUTONOMY IN INTERNATIONAL CONTRACTS 1-13 (1999) and at 13 (“Today the freedom of parties to an international contract to choose the applicable law is almost universally acknowledged.”)

139 See e.g., Klaus Peter Berger, THE CREEPING CODIFICATION OF LEX MERCATORIA 76 (1999) (“One has to bear in mind that parties to an international contract may choose a law that has no connection to the transaction . The requirement [of] the past that the law chosen by the parties needs to have some ‘sensible connection’ with the case, has long been abandoned.”)

and duties.”). Commentators have noted that, even if a “reasonable relationship” requirement is imposed, it typically “has been so broadly interpreted that it has become little more than one of the legal esthetics.” Ian F. Baxter, International Conflict of Laws and International Business, 34 INT’L & COMP. L. Q. 538, n.7 at 541 (1985).

140 See generally, Philip J. McConnaughay, The Risks and Virtues of Lawlessness: A ‘Second Look’ at International Commercial Arbitration, 93 NW.U.L.REV. 453, 455 and 482-494 (1999) (and cases cited therein) and Philip J. McConnaughay, Reviving the ‘Public Law Taboo’ in International Conflict of Laws,

the context of international commercial arbitration, the contractual designation of applicable law need not be of “law” at all

35 STAN. J. INT’L L. 255, 280-283 (1999). As I explain in both of the foregoing articles, the cases that permit the extension of party autonomy to public regulatory law, in my view, do a substantial disservice both to the legitimate regulatory interests of the states enacting the contractually displaced regulatory law, and to international commerce. With respect to the latter, I will mention here only my concern that the arbitrability of public regulatory law claims (e.g., principally, thus far, antitrust and securities fraud claims) likely will have three interrelated consequences harmful to international commerce: first, it likely will result in heightened judicial review of arbitral awards due to the increased likelihood of negative externalities resulting from erroneous denials of valid antitrust and securities law claims

141 National courts typically are far less willing than international arbitrators to entertain applicable law designations of general legal or equitable principles, which in the context of international commercial arbitration effectively are insulated from judicial review by the New York Convention. See e.g., Peter Nygh, AUTONOMY IN INTERNATIONAL CONTRACTS 191-195 (1999) and at 195 (noting that courts in France, Austria, Italy, England and the United States “have not viewed the application of general principles of law by arbitrators as an obj ection to the enforceability of the award”)

142 See e.g., F.A. Mann, England Rejects ‘Delocalized’ Contracts and Arbitration, 33 INT’L & COMP. L. Q. 193, 196-97 (1984) (“[T]he purpose of [lex mercatoria and amiable composition] is to substitute illdefined ‘equity’ for rules of law, to rely on what is considered fair and conforming to usage. It is difficult to imagine a more dangerous, more undesirable, and more ill-founded view which denies any measure of predictability and certainty and confers upon parties to an international commercial contract or their arbitrators powers that no system of law permits and no court could exercise.”), and Klaus Peter Berger, THE CREEPING CODIFICATION, supra note 139 at 5 (“A recent worldwide survey among attorneys active in international commercial law has revealed that most of them would strongly advise against including a provision in the contract of their client referring to the lex mercatoria as the lex contractus. In their opinion, transnational law does not have the ‘definitive’ and ‘provable’ quality of domestic laws.” [citing Barton S. Seldon, Lex Mercatoria in European and U.S. Trade Practice, 2 ANN. SURV. INT’L & COMP. L. 111 et seq. (1995)].).

Before discussing these alternative designations, however, it is important to consider whether non-Western commercial practices and expectations might find expression and acknowledgement in some aspect of a conventional “applicable law” designation of a particular nation’s law or an international convention, such as the

Convention on Contracts for the International Sale of Goods (“CISG”).143 One limited

avenue of expression, for example, might be the CISG’s rejection of the parol evidence rule in international sales contracts, thus permitting the introduction of evidence of a non-Western party’s subjective understanding of the relative priority of a written contract or certain of its terms in comparison to other values that might affect a commercial relationship.144 The possibility of this innovation serving non-Western interests is severely limited, however, by the requirement that other parties to the contract be chargeable with knowledge of the qualifying subjective intent,145 and by the apparent opportunity to escape such unwritten qualifications altogether through the simple device of a merger clause.146

Another aspect of most conventional applicable law designations that might serve as a vehicle for the recognition of non-Western expectations is the concept of a “trade usage,” which the CISG and many national laws and rules recognize as having capacity to explain, qualify, or supplement written contractual terms.147 A “trade usage,” according to conventional understanding, is a “practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question.”148 Thus, if the geographic location of a given East-West transaction were in Asia, perhaps customary non-Western

143 UNITED NATIONS CONVENTION ON CONTRACTS FOR THE INTERNATIONAL SALE OF GOODS, Apr. 11, 1980, 19 I.L.M. 671 (1980), supra note 139.

144 See CISG, art. 8(1) (“For the purposes of this Convention statements made by and other conduct of a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was.”) and 8(3) (“In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances “)

145 See CISG, supra note 144, art. 8(1), and MCC-Marble Ceramic Center, supra note 144, 144 F.3d at 1391 (“most cases will not present a situation (as exists in this case) in which both parties to the contract acknowledge a subjective intent not to be bound by the terms of a pre-printed writing.”).

146 See e.g., MCC-Marble Ceramic center, supra note 144, 144 F.3d at 1391 (“[T]o the extent that parties wish to avoid parol evidence problems [sic] they can do so by including a merger clause in their agreement that extinguishes any and all prior agreements and understandings not expressed in the writing.”), and commentators cited therein.

147 See generally E. Allan Farnsworth, CONTRACTS §7.13 (2d ed., 1990) and e.g., CISG, art. 9(2), UCC §1-205, and UNCITRAL MODEL LAW ON INTERNATIONAL ARBITRATION, art. 28(4) (“In all cases, the arbitral tribunal shall take into account the usages of the trade applicable to the transaction.”).

148 UCC §1-205.

practices regarding the potential subordination of law and contracts to other values might constitute a trade usage of that “place,” which the Western party would be expected to observe as well. In transnational transactions or those located in the West but including a non-Western participant, however, non-Western expectations and practices probably do not possess that degree of mutuality and regularity of occurrence necessary to qualify as a trade usage under the conventional definition.149 Consequently, although it certainly is conceivable that trade usages might emerge in East-West commerce that incorporate and reflect certain non-Western commercial practices and traditions, the concept of trade usage likely is not of much practical use currently as a means of giving legal cognizance to traditional non-Western expectations in the context of East-West commercial transactions.

A somewhat more likely vehicle for the recognition of non-Western practices and expectations in the context of a conventional “applicable law” designation is the requirement of “good faith” in contractual relations, as that requirement is imposed in a few civil law jurisdictions, most notably The Netherlands. The general concept of “good faith” (or “good faith and fair dealing”) in contractual relations, of course, is common to most civil law and common law nations, with the exception of England, where other doctrines serve somewhat similar purposes.150 As the German Federal Supreme Court has observed, “the notion of good faith is a supra-national legal principle that is inherent in all legal systems.”151 But generally, the requirement is limited in its application to assisting with the interpretation of contract terms or implying consistent terms

The Dutch formulation of good faith represents a possible exception to this conclusion by adding a dimension to the requirement of good faith that possesses the power, in appropriate circumstances, of derogation: “[a] rule binding upon the parties as a result of the contract does not apply to the extent that, in the given circumstances, this would be unacceptable according to criteria of reasonableness and equity.”153 Utrecht University Professor Arthur Hartkamp has explained the practical impact of this

149 See e.g., E. Allan Farnsworth, CONTRACTS, supra note 147, at 531.

150 See e.g., Klaus Peter Berger, THE CREEPING CODIFICATION, supra note 139 at 166-168

151 German Federal Supreme Court, NJW 1993, at 259, 263, as quoted by Klaus Peter Berger, THE CREEPING CODIFICATION, supra note 139, at 167.

152 See e.g., E. Allan Farnsworth, Duties of Good Faith and Fair Dealing, supra note 150, TUL. J. INT’L & COMP. L. at 59-63

153 See Article 6:248 of the Dutch Civil Code of 1992, NIEW BURGERLIJK WETBOEK (“NBW”) art. 6:248, para. 2 (P.P.C. Haanappel trans., 1990) and Arthur Hartkamp, The Concept of Good Faith in the UNIDROIT Principles for International Commercial Contracts, 3 TUL. J. INT’L & COMP. L. 65, 68 (1995).

provision in a way that roughly parallels traditional non-Western conceptions of the role of law and contracts in the structure and governance of commercial relationships: “A rule which binds the parties and is provided in either the text of the agreement or by statute does not apply to the extent that its provisions would be contrary to good faith.”154 Presumably, “good faith” in the Dutch regime does not capture all of the values and circumstances to which law and contracts might be subordinate in non-Western commercial traditions, and perhaps the relative value of law and contracts in the Dutch regime is higher, and thus less easily displaced, than in traditional non-Western practices, but the close resemblance nonetheless is apparent between good faith’s power of derogation in the Dutch regime and the traditional subordination of law and contracts to other values in non-Western commercial practices. Thus, a conventional “applicable law” choice of the Dutch Civil Code possibly would result in legal recognition of traditional non-Western assumptions regarding the role of law and contracts in an East-West commercial relationship.

A more reliable choice of “law” for that purpose would be the unconventional designation of general principles of equity, or amiable composition, or ex aequo et bono: “the power to decide ex aequo et bono is generally considered as an authorization to act contra legem, to depart from the law, to change the law, to accept a claim not recognized by the law or to reject a claim based on the law.”155 To decide ex aequo et bono is to seek a “resolution that is equitable, minimizes harm to either party, and enables potential adversaries to maintain a valuable commercial relationship

154 Arthur Hartkamp, The Concept of Good Faith, supra note 153, TUL. J. INT’L & COMP. L. at 66. Professor Hartkamp suggests that German, Swiss, and Austrian judicial interpretations of good faith have resulted in a similar power of derogation, although other civil law nations have resisted the development. Id, at 68-69. See also, Klaus Peter Berger, THE CREEPING CODIFICATION, supra note 139, at 61.

155 Louis B. Sohn, Arbitration of International Disputes Ex Aequo et Bono, in LIBER AMICORUM FOR MARTIN DOMKE 330, 332-33 (Pieter Sanders, ed., 1967). Disputes between states sometimes are resolved ex aequo et bono, “[i]n particular, where there is a conflict between the requirements of law and peace.” Id., at 333.

156 Paul D. Carrington and Paul H. Haagen, Contract and Jurisdiction, 1996 SUP. CT. REV. 331, 345 (1996).

157 Rene David, ARBITRATION IN INTERNATIONAL TRADE 335 (1985).

158 By “private commercial disputes” I mean disputes between private parties within the realm of private law (i.e, essentially the law of contracts for these purposes, although traditionally including property, tort, and family law as well), for I do not wish to suggest in any manner that I view equitable decision-making standards (or even arbitration, for that matter, see note 140, supra) appropriate for the resolution of claims within the realm of public regulatory law, for which “legally correct” outcomes are highly important, and certainly more so than the interests of private commercial parties, no matter what their traditional practices and expectations. See id. For the long-standing general acceptance of equitable standards of decisionmaking in private law arbitrations see e.g., UNCITRAL MODEL LAW ON INTERNATIONAL COMMERCIAL ARBITRATION, art. 28(3) (the arbitral tribunal may decide ex aequo et bono or as amiable compositeur if authorized by the parties)

discretion they invest in arbitrators, of ensuring a full accounting of non-Western practices and expectations in the context of an East-West commercial relationship.

The obvious risk of purely equitable decision-making, however, is that the same wide discretion that is capable of granting legal recognition to non-Western practices and expectations also is capable of denying recognition. The success of “equity” as a standard clearly turns more on the decision-maker than it does on the decision-standard, as countless individuals from non-Western traditions no doubt can testify.159 Thus, general principles of equity, ex aequo et bono, or amiable composition, at least in their singular capacities, are not likely to result in the evolution of new, transferable principles for the governance of commercial transactions including parties from both Western and non-Western traditions. Nonetheless, the inherent openness of these standards to new and different considerations and values in the governance of East-West commercial affairs certainly suggests their capacity for a significant contribution to this goal.

A more likely candidate for achieving the goal, over time, is a new lex mercatoria, a transnational commercial law that would embody and articulate new principles of engagement for commercial transactions between Western and non-Western participants. I acknowledge the danger, of course, in using a term so evidently European in its lineage for purposes of denoting principles capable of transcending the Western/non-Western legal and commercial divide.160 Perhaps principia mercatoria,161 or some even more neutral phrase would be better than “lex mercatoria.” But my point is the substance of the concept rather than its label, and “lex mercatoria” clearly is evocative of governing

International Commercial Arbitration, 37 THE BRITISH YEARBOOK OF INTENATIONAL LAW 478 (1961) (discussing a similar provision in the 1961 European Convention)

159 See the second paragraph of note 77, supra.

160 See e.g., M. Sornarajah, The UNCITRAL Model Law: A Third World Point of View, 6 J. INT’L ARB. 7, 17 (1989) (“the so-called lex mercatoria is a creation of Western scholars and arbitrators who have loaded it with norms entirely favourable to international business”), and Abul F.M. Maniruzzaman, The Lex Mercatoria and International Contracts: A Challenge for International Commercial Arbitration, 14 AM. U. INT’L L. REV. 657, 658-59 (1999) (for a brief historical account of lex mercatoria).

161 I am borrowing the phrase “principia mercatoria” from the late Keith Highet, although I do not wish to suggest, as did Mr. Highet, that principia are is some sense subordinate to “law” in the context in which I am suggesting their development. See Keith Highet, The Enigma of the Lex Mercatoria, 63 TUL. L. REV. 613, 628 (1989). Some might object to my phrase “governing principles” as oxymoronic, believing that only “law” or “rules” may govern, not “principles” (Cf. e.g., Peter Nygh, AUTONOMY IN INTERNATIONAL CONTRACTS, supra note 141, at 181, “If the rules are nothing more than guidelines or principles, a choice of lex mercatoria to govern the agreement would deprive it of contractual force”), but I believe the phrase important in order to distinguish the “principles” that might emerge for the governance of East-West commerce from the “law” that traditionally has governed in the West. I also do not agree, even within Western legal terminology, that “principles” are inconsistent with governance, as conventional “general principles of law” or the UNIDROIT “Principles” suggest.

principles divorced from the parochial traditions and expectations of one party or another to an international commercial transaction. It is in this aspirational sense that I intend my use of the term. I also do not wish to imply by “a new lex mercatoria” principles that depend for their force on some yet-to-be-established supranational legal order

The content of a new lex mercatoria for West/non-West commerce necessarily must transcend that which emerges merely from the authority of arbitrators to fill lacunae in existing commercial laws and contracts,164 or from the rules of law common to most trading nations,165 or from “standard” contract terms or other established customs and usages of trade,166 all of which are certain to be Western in both origin and outcome. It makes no sense to limit a new lex mercatoria to common norms and rules when it is precisely their absence that suggests its necessity. Instead, the lex mercatoria for West/non-West commerce must explore new frontiers of governance for parties from these vastly different traditions

162 The scope of party autonomy in international contracts to designate applicable law and decisional rules clearly should be sufficient for this purpose. See generally, Peter Nygh, AUTONOMY IN INTERNATIONAL CONTRACTS, supra note 141, at 172 to 198

163 The debates over the legal authority for lex mercatoria are long-standing and fierce. See generally e.g., Klaus Peter Berger, THE CREEPING CODIFICATION, supra note 139, at 32 to 113

164 See e.g., William W. Park, Control Mechanisms, supra note 125, LEX MERCATORIA AND ARBITRATION at 109.

165 See e.g., Klaus Peter Berger, THE CREEPING CODIFICATION, supra note 139, at 38, and Ole Lando, Assessing the Role of the UNIDROIT Principles, supra note 141, 3 TUL. J. INT’L & COMP. L. at 133.

166 Id .

167 See Berthold Goldman, The Applicable Law: General Principles of Law – The Lex Mercatoria, in CONTEMPORARY PROBLEMS IN INTERNATIONAL ARBITRATION 113, 116 (Julian D.M. Lew, ed., 1987) (“lex mercatoria is, at the least, a set of general principles and customary rules spontaneously referred to or elaborated in the framework of international trade, without reference to a particular national system of law.”), and Berthold Goldman, Lex Mercatoria, FORUM INTERNATIONALE No. 3, Nov.,

As a practical matter, the search for this new lex mercatoria depends on two factors: authorization by the parties to West/non-West commercial transactions, and, publication of possible new principles as they emerge. The first factor requires commercial parties bold enough to believe that their interests might be best served by contractual choice of law clauses that contemplate a degree of experimentation and mutual adjustment rather than legal certainty and winners and losers. The fact of mutual adjustment in many Western business relationships suggests that Western clients may be willing to grant such authorization even though their lawyers may not be.168 The best form of authorization would be a contractual choice of law clause that combines equity

1983, at 21. Dr. Maniruzzaman quotes Professor R.J. Dupuy’s Legal Opinion to Aminoil, para. 26, from the Pleadings of Kuwait v. Aminoil (21 I.L.M. 976 (1982) (available in Squire Law Library, University of Cambridge), as explaining that the “principal characteristic [of lex mercatoria] is that it is spontaneous and has been established by the creation of new rules or by the adaptation of existing legal rules and practice to the requirements of contemporary international economy. Its origin is the need for efectiveness pursued by the various economic agents across, or in defiance of, frontiers.” Abul F.M. Maniruzzaman, The Lex Mercatoria and International Contracts, supra note 160, 14 AM. U. INT’L L. REV. at 67 (emphasis in original). Dr. Maniruzzaman suggests that Professor Goldman’s view of lex mercatoria is narrower and less expansive than that of other commentators because his definition tends to exclude from lex mercatoria principles that are common to laws and rules of State or inter-State origin. Id., at 665. However, that is precisely the reason I find Professor Goldman’s view so suitable for a new lex mercatoria for Western/non-Western commerce

168 Professor Whitmore Gray made a similar point in his study of Japanese contracting practices. Whitmore Gray, The Use and Non-Use of Contract Law in Japan: A Preliminary Study, 17 L. JAPAN 98, 105 (1984). The same point also tends to emerge from a comparison of Robert Ellikson, ORDER WITHOUT LAW: HOW NEIGHBORS SETTLE DISPUTES (1991) and Stewart Macaulay, Non-Contractual Relations in Business, 28 AMER. SOC. REV. 55 (1963) (both of which document American business facility with noncontractual mutual adjustment in commercial relationships) with the recent survey of attorneys active in international commercial practice suggesting their disdain for contractual choice of law clauses designating lex mercatoria. See note 142, supra. Professor Lewellyn long ago suggested that mutual adjustment is a fact of life even within contractual relationships in the West: “[T]he major importance of a legal contract is to provide a framework, a highly adjustable framework, which almost never accurately indicates real working relations but which affords a rough indication around which such relations may vary, an occasional guide in cases of doubt, and a norm of ultimate appeal when relations cease in fact to work.” Karl N. Llewellyn, What Price Contract? – An Essay in Perspective, 40 YALE L. J. 704, 736-37 (1931). The significant body of legal scholarship that assesses, in the context of Western contract law, the issue of possible judicial adjustment of incomplete contracts, certainly is useful to the inquiry I am suggesting, but off point to the extent that it confines its solutions to the Western realm of the sanctity of contract. See e.g., Alan Schwartz, Relational Contracts in the Courts, supra note 167

and lex mercatoria for the governance of the commercial relationship and the resolution of any disputes, or perhaps a clause that combines equity and some municipal law or the UNIDROIT Principles of International Commercial Contracts.169 A critical component of such clauses, of course, is equity’s power of derogation, which would authorize the

subordination of existing principles of law to the new principles that might emerge from the careful consideration of competing interests in West/non-West commerce.170 The additional designation of a municipal law or body of law, as opposed to simply lex mercatoria or general principles of law, might turn on the type of transaction and the need for greater guidance from a specific substantive framework.171

The second factor necessary for the emergence of a new lex mercatoria is publication of the new principles that emerge from the combined application of equity and lex mercatoria or law to East-West commercial relationships. If undertaken improperly, however, publication could impede rather than advance progress towards this goal. Clearly, the transferability of new governing principles for East-West commerce

169 The UNIDROIT Principles of International Commercial Contracts were drafted by the Institute for the Unification of Private Law (UNIDROIT), in Rome, under the chairmanship of Professor Michael Joachim Bonell. Although the principles have a Western flavor (e.g., Article 2.17, permitting merger clauses), they distinctly favor substantive fairness over the sanctity of the written contract (e.g., Article 3.10(2) permitting judicial adjustment of contracts to accord with fair dealing if a written term gives excessive advantage), and they are intended to be “sufficiently flexible to encompass shifting cross-border relationships between nations with significantly different backgrounds.” See Michael Joachim Bonell, Policing the International Commercial Contract Against Unfairness Under the UNIDROIT Principles, 3 TUL. J. INT’L & COMP. L. 73, 75 (1995). Examples of choice of law clauses combining equity and lex mercatoria or a municipal law, or lex mercatoria and a municipal law, have been documented in previous scholarship. See e.g., Ole Lando, The Law Applicable to the Merits of the Dispute, in CONTEMPORARY PROBLEMS IN INTENATIONAL ARBITRATION 101, 104 (Julian D.M. Lew, ed., 1987) (“parties often choose a combination of the lex mercatoria and equity (amiable composition).”), and Berthold Goldman, The Applicable Law, supra note 167, at 117 (“Other contractual clauses do not exclude the applicability of a municipal law, but call for its combination with the lex mercatoria”).

170 See e.g., Klaus Peter Berger, THE CREEPING CODIFICATION, supra note 139, at 59 (“decisions ex aequo et bono are particularly appropriate to foster the evolution of a transnational commercial law . The authority to act as amiable compositieur induces international arbitrators, much more than in proceedings under strict law, to combine [a] functional comparative analysis with a look at the legitimate commercial interests of the parties in order to arrive at a solution that is ‘just’ from a commercial point of view.”)

171 See e.g., Abul F.M. Maniruzzaman, The Lex Mercatoria and International Contracts, supra note 160, 14 AM. U. INT’L L. REV. at 667-668 and citations therein (“Recently, there seem to be reinvigorated efforts to distill and collate such rules in the fields of petroleum transactions such as lex petrolea, electronic transactions such as the lex electronica, construction contracts such as the lex constructionis, and maritime matters such as the lex maritima .”), and Klaus Peter Berger, THE CREEPING CODIFICATION, supra note 139, at 230.

will depend on publication of the principles, whether in the form of reasoned arbitral awards or reflective scholarship by those who participate in the deliberative process

Presumably, the well-established prohibitive force of the New York Convention on judicial review of the merits of foreign arbitral awards will continue to hold despite any increase in the arbitral application of equitable or similar standards to the resolution of arbitrated disputes,174 at least assuming that the disputes remain within the realm of private law and do not include claims based on public regulatory law, for which more exacting judicial review would be appropriate.175 The potential inconsistencies between publication and arbitral confidentiality and flexibility also are surmountable, although perhaps less regularly. Professor Carbonneau’s solution of discretionary publication that preserves the anonymity of parties when it does occur is one solution,176 with the caveats that (1) arbitrators must not underestimate the importance of strict confidentiality to non-Western parties concerned with traditions of “face”177 and unaccustomed to the Western tradition of resolving commercial disputes in public judicial proceedings, and (2) arbitrators must exercise caution so that the form of their publication does not inadvertently promote future procedural or presentational adjustments counterproductive to the openness to variation that supported the new principles to begin with. Postarbitration scholarship divorced from particular facts is a possible option for cases in which any of these risks seems significant.178

172 See notes 104 to 107 and accompanying text, supra. See also Philip J. McConnaughay, The Risks and Virtues of Lawlessness, supra note 121, 93 Nw. U. L. REV. at 511-512.

173 Cf. e.g., William W. Park and Jan Paulsson, The Binding Force of International Arbitral Awards, 23 VA. J. INT’L L. 253, 265 (1983) (“[A]rbitrators should be free from the threat of being overruled because of [“]errors [“] in their analysis, so that reasoned awards will be rendered more frequently, thereby contributing to the development of a modern ‘law merchant. ‘”) (bracketed quotation marks added).

174 See note 119 and accompanying text, supra.

175 See note 140, supra.

176 See Thomas E. Carbonneau, Arbitral Adjudication: A Comparative Assessment of Its Remedial and Substantive Status in Transnational Commerce, 19 TEX. INT’L L. J. 33, 114 (1984) (“The important practical consideration is to have such awards published while maintaining the anonymity of the parties, either in a comprehensive fashion or on a selective basis .”).

177 See notes 94 to 96 and accompanying text, supra.

178 It should go without saying that the selection of arbitrators with sufficient judgment, creativity, crosscultural awareness, and capacity for openness to new and different ideas of commercial governance, is as critical to the development of a new lex mercatoria as new forms of dispute resolution and new choices of applicable “law.”

In sum, the contractual designation of “applicable law” in East-West commercial transactions requires a rethinking of conventional possibilities and an openness to equitable and other unconventional designations more likely to promote the development of principles that reflect and attempt to transcend the lack of shared understanding typical of these relationships regarding the role of law and contract in their governance.

C. Rethinking East-West Contract Terms

As Professor Berthold Goldman once reminded, “law is not only made of and for disputes.”179 The principles of a new lex mercatoria for East-West commerce also will guide and govern the same day-to-day commercial affairs from which they evolve. New contract terms in East-West relationships likely will emerge that both anticipate and reflect this process. Perhaps the new terms will assume Western-style primacy in relation to ex contractu values as the “rule of law” becomes more pervasively realized throughout non-Western societies, but perhaps at the same time the terms will reflect those non-Western commercial traditions, such as mutual adjustment to evolving circumstances and greater flexibility in legal relationships, that are both consistent with core characteristics of the rule of law and susceptible of reasonable articulation in commercial contracts. The possibilities, of course, are as great as the number and types of East-West commercial transactions. I will conclude by briefly mentioning only a few.

The likeliest new terms, I suspect, will be those that blur the distinction between dispute resolution and performance by embodying mutual executory promises to consider and adjust in good faith to evolving circumstances in a business relationship. This is essentially the meaning of traditional “friendly negotiations” clauses in Asian contracts

179 Berthold Goldman, The Applicable Law, supra note 167, at 125 (“Now, law is not only made of and for matters in dispute. It governs, independently of any dispute, the functioning of human society that engender it and effectively applies it. In respect of the international economic community, I believe the lex mercatoria is such a law .”).

180 See notes 88 to 92 and accompanying text, supra.

181 See e.g., Martin Bartels, CONTRACTUAL ADAPTATION AND CONFLICT RESOLUTION (1985)

E.87. V. 10, ISBN 92-1-133300-804200p (1988), which suggests terms contemplating potential adjustment obligations with respect to price, product specifications, changes in construction costs, and changes in local regulations or conditions.

conversely, set terms might be tempered by new, more relaxed conceptions of hardship or force majeure, with considerably lower thresholds of application, and adjustment rather than excuse as the remedy.182 Overarching obligations of good faith and fair dealing also might be employed, with more precise articulations of this duty attending various stages of contract formation and performance. In short, new approaches might emerge for several aspects of contract drafting, with the challenge of articulating general ongoing duties acquiring far greater importance and the process of anticipating and specifying contingencies and their consequences diminishing considerably in significance.

Conclusion

Commercial law in Asia is outpacing Asian commercial practices by a wide margin. Even though Western insistence on the rule of law as a condition of cross-border commerce has been met by enthusiastic acceptance and lawmaking by Asian policymakers, it has not occasioned the pervasive change in individual attitudes and beliefs essential to a widespread change in the traditionally subordinate role of law and contracts in matters of private commerce. As a result, there is a significant normative gap throughout Asia between written commercial law and commercial behavior, with traditional expectations often still strong regarding the subordination of law and contracts to evolving circumstances and relational values. Moreover, there is every reason to expect this gap to persist for decades or longer, with its narrowing no more likely to herald the complete Westernization of Asian commercial practices than it is the evolution of entirely new principles for East-West economic exchange that incorporate and reflect fundamental non-Western values.

The principal challenge for East-West commerce in the meantime is to somehow account in the structure and governance of commercial relationships for traditions so different that law and contracts are determinative of performance and outcomes in one

but subordinate to other values in the other. The likely trade-off, for those bold enough to attempt an accommodation, will be reductions in “legal” predictability for increases in commercial stability. In the context of dispute resolution and international commercial arbitration, this will require turning a deaf ear to demands for Westernizing “control mechanisms” and instead working to preserve the features of international arbitration that spawned the demands: complete privacy and confidentiality, inexact and flexible rules of procedure, elastic notions of relevance and evidence, significant presentational latitude and variance, arbitrator responsibilities inconsistent with Western notions of impartiality, and, an openness to decisional rules and outcomes inconsistent with Western notions of legal predictability and commercial justice. In the context of contractual choice of law, this will require the designation of unconventional decisional rules, such as the combination of equity and lex mercatoria, that would empower arbitrators to act contra

182 Articulating the threshold conditions of adjustment, of course, presents a considerable drafting challenge. Cf. e.g., K.M. Sharma, From “Sanctity” to “Fairness “: An Uneasy Transition in the Law of Contracts, 18 N.Y.L.Sch. J. INT’L & COMP. L. 95, 132-142 (1999) (discussing conventional manifestations of force majeure, impossibility, impracticality, frustration, and similar doctrines in relation to traditions of contractual adjustment), and, Nagla Nassar, SANCTITY OF CONTRACTS REVISITED 205-230 (1995) (comparing classical doctrines of excuse with relational doctrines of adjustment).

legem, and in the process, to explore and articulate new principles of governance that transcend the fundamentally different understandings within the Western and non-Western worlds regarding the role and rank of law and contracts in commercial relationships. Finally, this will require new contract terms that blur the traditional distinction between dispute resolution and performance by embodying mutual executory promises to consider and adjust in good faith to evolving circumstances in a business relationship. Through all of these efforts, a shared understanding may emerge of a legal basis upon which East-West commerce successfully may proceed.