Standard Form Contracts as Transnational Law: Evidence from the Derivatives Markets

AuthorJoanne P. Braithwaite
Publication Date01 Sep 2012
Standard Form Contracts as Transnational Law:
Evidence from the Derivatives Markets
Joanne P. Braithwaite*
This paper uses new research into the derivativesmarkets to develop our understanding of standard
form contracts as transnational law and to show how transnational law theory may be usefully
informed by empirical work. Traditionally, it has been assumed that international business com-
munities seek to avoid the courts. However, the paper shows that the national courts play a
prominent role in adjudicating disputes involving derivatives. Basing the discussion on the detail
of these decisions by the English courts, the paper demonstrates that adjudication does not
necessarily undermine widely used standard form contracts, and that it may even reinforce
practices that underpin them. This is particularly the case where there is imperfect co-incidence
between a trade association’s members and a standard form contract’s users. Having explored
recent cases,the paper reconciles its findings with a more open and imaginative account of the role
of national courts within transnational law theory.
Rather than negotiating each deal from scratch, parties engaged in international
trade rely heavily on standard form contracts. This is the case across many
specialist sectors, including shipping,1commodities2and debt finance,3while a
single set of standard form documentation enjoys a near-monopoly in the vast
‘over-the-counter’ derivatives markets.4
The use of standard form contracts is credited with greatly increasing
the efficiency and legal certainty of cross-border transactions.5However, while
the practice simplifies dealings for participants in international trade, it poses
*Department of Law, London School of Economics.The author is very grateful to Professor Ralf
Michaels for the opportunity to discuss an earlier version of this work.Any errors are the author’s own.
1 Y. Dezalay and B. Garth, Dealing in Virtue: International Commercial Arbitration and the Construc-
tion of a Transnational Legal Order (Chicago and London: University of Chicago Press, 1996)
chapter 7.
2 H. Collins, Regulating Contracts (Oxford: OUP,1999) 212–218; E. Murray,‘UK Financial Deriva-
tives ad Commodities Markets’in M. Blair and G.Walker (eds),Financial Markets and Exchanges Law
(Oxford: OUP, 2007) 275–282.
3 Standard form documentation for use in the syndicated loan market is published by the Loan
Markets Association. The principal terms of its single currency term facility ag reement are
discussed in J. Benjamin, Financial Law (Oxford: OUP, 2007) 160–170.There are considerable
differences between the ways in which actors use different sets of terms in practice,eg the extent
to which they amend them, but they are beyond the scope of this paper.
4 Definitions of‘der ivatives’and ‘over-the-counter derivatives’are provided in text accompanying n
41 and n 42 below. The dominance of one set of standard terms is discussed in text accompanying
n 46 below.
5 M. Kahan and M. Klausner, ‘Standardization and innovation in corporate contracting (or “The
economics of boilerplate”)’ (1997) 83 Virginia Law Review 713,describing‘lear ning’ and ‘network’
© 2012The Author.The Modern Law Review © 2012 The Modern Law ReviewLimited. (2012) 75(5) MLR 779–805
Published by BlackwellPublishing, 9600 Garsington Road, Oxford OX42DQ, UK and 350 Main Street, Malden,MA 02148, USA
considerable challenges in terms of legal theory. This is because, as particular
standard form contracts come to enjoy widespread use on a worldwide basis,they
metamorphose from simple creatures of national contract law, into something
new and more exotic (or, at least, less well understood).To date, this new status
has been best captured by reference to the concept of transnational private law,
or ‘global law without a state’,6according to which standard form contracts may
be understood as a set of binding norms that are generated privately.This way of
analysing the status of widely used standard form contracts has led to a number
of important insights. For example, it has drawn attention to what Calliess and
Zumbansen have called a‘dramatic proliferation of norm-entrepreneurs’,7raising
pressing questions about legitimacy, democracy and the accountability of the
trade associations that are the authors of these standard terms.8This paper seeks
to develop further this way of theorising standard form contracts, by drawing
upon the broader debates about transnational law, as well as new empirical
research undertaken by the author.
However,it is impor tant to note at the outset that the insights available by way
of transnational law theory are considerably complicated by the fact that the
subject remains riven with controver sy and, as Jansen and Michaels have put it,
‘remarkably poorly understood.9This is particularly the case as regards the
fundamental issue of the relationship between transnational and state law, which
is a persistent source of ‘anxiety’10 within the scholarship. The different accounts
of this relationship have been explained and evaluated in detail elsewhere,11 but
it is worth explaining the relevant features of this broader debate, in order to
consider the implications for our understanding of standard form contracts as
transnational law.
For some scholars, the phenomenon of transnational law qualifies ‘merely
. . .as complement to the otherwise applicable domestic law’.12 This conclusion
is based the absence of characteristics regarded as inherent to free-standing legal
orders, including validation by the state.Within such accounts, certain terms of
standard form contracts may evidence trade usage within a particular market,
6 G.Teubner,‘“Global Bukowina”:Legal Pluralism in the World Society’ in G.Teubner (ed),Global
Law Without a State (Aldershot: Dartmouth, 1997) 3.
7 G. Calliess and P. Zumbansen, Rough Consensus and Running Code:A theory of Transnational Private
Law (Oxford and Portland, Oregon: Hart, 2010) 107.
8 C. Bradley, ‘Private International Law-making for the Financial Markets’ (2005) 29 Fordham
International Law Journal 127, 165–174; J. Dalhuisen,‘The Operation of the International Com-
mercial and Financial Legal Order: The Lex Mercatoria and its Application -Moving from the
Theories of Legal Positivism and Formalism to the Practicalities of Legal Pluralism and Dynamism’
(2008) 19 EBLR 985, 1024 and 1046,calling for more study of the role of trade associations in the
emergence of a new law merchant.
9 N. Jansen and R. Michaels,‘Beyond the State? Rethinking Private Law:Introduction to the Issue’
(2008) 56 American Journal of Comparative Law 527, 527.
10 A. Riles, Collateral Knowledge: Legal Reasoning in the Global Financial Markets (Chicago and London:
University of Chicago Press, 2011) 32.
11 For example, R. Cranston,‘Theorizing Transnational Commercial Law’ (2006–7) 42 Texas Inter-
national Law Journal 597; R. Michaels,‘TheTrue Lex Mercatoria: Law Beyond the State’(Summer
2007) 14(2) Indiana Journal of Global Legal Studies 447; and Teubner, n 6 above,8–11.
12 K. Berger, The Creeping Codification of the New Lex Mercator ia (Alphen aan den Rijn:Kluwer Law
International, 2nd ed, 2010) 61 (discussing, rather than endor sing, this characterisation).
Standard Form Contracts as Transnational Law
© 2012 TheAuthor.The Moder n Law Review© 2012 The Modern Law Review Limited.
780 (2012) 75(5) MLR 779–805

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