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Edited by
Michael Faure
Professor of Comparative and International Environmental
Law, Maastricht University and Professor of Comparative
Private Law and Economics, Erasmus University Rotterdam,
The Netherlands
Edward Elgar
Cheltenham, UK • Northampton, MA, USA
© The Editors and Contributors Severally 2010
Published by
Edward Elgar Publishing Limited
The Lypiatts
15 Lansdown Road
Cheltenham
Glos GL50 2JA
UK
A catalogue record for this book is available from the British Library
v
vi Globalization and private law
References 330
Legislation, Codes and Reports 330
Cases 333
Books 333
Journal articles 334
Websites 339
Index 469
Contributors
Curtin, Deirdre, University of Amsterdam and University of Utrecht, the
Netherlands
du Plessis, Lourens, Stellenbosch University, South Africa
Eiselen, Sieg, University of South Africa, South Africa
Faure, Michael, Maastricht University and Erasmus University Rotterdam,
the Netherlands
Lindenbergh, Siewert, Erasmus University Rotterdam, the Netherlands
Quinot, Geo, Stellenbosch University, South Africa
Smits, Jan, Tilburg University, the Netherlands and University of Helsinki,
Finland
Spier, Jaap, Hoge Raad and Maastricht University, the Netherlands
Steins Bisschop, Bas, Maastricht University and Nyenrode Business
University, the Netherlands
Stroink, Frits, Maastricht University, the Netherlands
Sutherland, Philip, Stellenbosch University, South Africa
Van den Bergh, Roger, Erasmus University Rotterdam, the Netherlands
Van der Walt, André, Stellenbosch University, South Africa
Van Rhee, Remco, Maastricht University, the Netherlands
xv
Abbreviations
(A) Appellate Division of the Supreme Court (South
Africa)
(CC) Constitutional Court (South Africa)
(E) Eastern Cape High Court (South Africa)
(N) Natal High Court (South Africa)
(SCA) Supreme Court of Appeal (South Africa)
(T) Transvaal High Court (South Africa)
(W) Witwatersrand High Court (South Africa)
Aarhus Convention Convention
AB AB Rechtspraak Bestuursrecht
ADR Alternative Dispute Resolution
AIDA Association International de Droit des Assurances
AJCL American Journal of Criminal Law
ALI American Law Institute
ALL ER All England Law Reports
ALL SA All South Africa Reports
ALR American Law Reports
ANC African National Congress
AZAPO Azanian People’s Organization
B2B business-to-business
B2C business-to-consumer
BCLR Butterworths Constitutional Law Reports (South
Africa)
BEE Black Economic Empowerment
BLLR Butterworths Labour Law Reports
BRIC Brazil, Russia, India and China
BSE bovine spongiform encephalopathy
C&F cost and freight
CC Crown Cases
CEO chief executive officer
CEPEJ European Commission for the Efficiency of Justice
CEPR Centre for European Policy Research
CERES Coalition for Environmentally Responsible Economics
CESR Committee of European Security Regulators
CFR Common Frame of Reference
xvi
Abbreviations xvii
UK United Kingdom
UKHL United Kingdom House of Lords Decisions
ULF Uniform Law on the Formation of Contracts for the
International Sale of Goods
ULIS Uniform Law of International Sales
UN United Nations
UN ESCOR United Nations Economic and Social Council
Regulation
UNCITRAL United Nations Commission for International Trade
Law
UNCTAD United Nations Conference on Trade and Development
UNCTC United Nations Convention on Transnational
Corporations
UNECE United Nations Economic Commission for Europe
UNIDROIT International Institute for the Unification of Private
Law
UNSW University of New South Wales
UP UNIDROIT Principles of International Commercial
Contracts
US United States
US GAAP United States Generally Accepted Accounting
Principles
USA United States of America
VOC Verenigde Oost-Indische Compagnie
VPs Voluntary Principles on Security and Human Rights
WCO World Customs Organization
WRAP Worldwide Responsible Accredited Production
WTO World Trade Organization
ZWeR Zeitschrift für Wettbewerbsrecht
Introduction and editorial preface
Michael Faure and André van der Walt
1
2 Globalization and private law
sphere of private legal relationships. At most, one can speak of indications that
traditional law makers and judicial officers in the sphere of ‘pure’ private law
may resist the increasing influence of international and other public law instru-
ments, rules and standards, while on the other hand there are strong indications
that the influence of international law and of non-traditional legal sources is
de facto increasing.
tions for domestic legal systems as well. The implications and the importance
of financial/economic globalization are clear for private as well as for public
law (for example, pointing to developments within international trade law).
There are, in addition, increasing signs of political globalization, more partic-
ularly a further expansion of the notion of constitutional democracy.
Originally, this political model seems to have been the ‘privilege’ of countries
in the North. Nowadays, however, this model is exported to quite remote
places. This political globalization has important consequences for the legal
system as well. Hence, one may wonder whether, in addition to economic
globalization, there is also a convergence of virtues, values and interests that
results from increasing political globalization.
Indeed, questions arise about the appropriate way in which the legal system
should react to the pressures of increasing globalization that directly affects
private legal relationships. Some argue that increasing harmonization of legal
systems is the appropriate answer to globalization in financial markets,
whereas others argue that globalization does not do away with local differ-
ences and differing preferences, so that room should still be left for diver-
gence. A fundamental question in this respect is who finally takes the decision
on lawmaking: within the so-called federalism debate it may be clear that it is
no longer only the national legislator who takes decisions, since lawmaking is
increasingly influenced by international institutions and organizations.
However, the role of these organizations in lawmaking raises serious questions
of accountability and legitimacy.
Questions also arise about the relationship between the judge in the domes-
tic legal system who has to resolve disputes between private parties and inter-
national norms. In some cases, judges in national courts can be called upon to
apply international norms directly, or they can test the legitimacy of national
legal instruments against international norms (such as human rights). At the
international level, globalization thus also has a direct influence on adjudica-
tion of private legal relationships. Less clear, however, especially at the
normative level, is who should ideally have the power of decision-making in
this respect: should it be the legislator, or can sufficient leeway be given to the
judiciary? Moreover, the fact that the judiciary is called upon to interpret and
apply international legal norms does not answer the fundamental questions
with respect to the accountability and legitimacy of international organizations
which set the standards that the judges apply within the national legal context.
To some extent, institutional solutions within the public law arena are
presented as either judicial review or review by constitutional courts or courts
of human rights. However, the mechanisms put in place within the different
4 Globalization and private law
settings and jurisdictions vary to a large extent, including as far as their influ-
ence on private legal relationships is concerned.
Perhaps by the year 2001, the representatives of oppressors, victims, victors, losers
and adversaries, could assemble on a world stage in a therapeutic ceremony to put
the past behind.
That futuristic perspective has not been realized yet and, moreover, the ques-
tion is whether, as some of the literature indicates, it should indeed be ‘the
West’ that determines the agenda leading to convergence of values at the polit-
ical level. Given the importance of political globalization an important ques-
tion is how various multicultural perspectives can be taken into account in
such a legal-political process of convergence. The traditional view that the
West can impose its norms upon the rest of the world is obviously no longer
the prevailing paradigm. The cultural clash between the West and, for exam-
ple, Muslim communities has shown that a convergence perspective should
also take multiculturalism into account. In that respect the comparison
between Europe and developments in South Africa is highly interesting, given
the fact that South Africa has, in its constitution, moved towards a recognition
of multiculturalism within one legal system.
1 Seita (1997).
Introduction and editorial preface 5
Many of the European contributors to this book worked together in the Ius
Commune Research School which is a collaboration between the law faculties
of the universities of Amsterdam, Maastricht and Utrecht (the Netherlands)
with the Catholic University of Leuven. The focus of the Ius Commune
Research School is on the role of law in integration processes. A lot of atten-
tion has always been paid in the research of the Ius Commune Research
School to questions of harmonization and comparative law in the area of
private law, focusing strongly on the questions related to the harmonization
debate. In that respect the Ius Commune Research School (which started its
activities in 1997)2 has a long-standing collaboration with law faculties repre-
senting mixed legal systems, on the basis of the belief that the lessons from
mixed legal systems can prove valuable for the harmonization debate in
Europe.3 Hence, the Ius Commune Research School has long-standing
contacts with the law faculty of the University of Edinburgh4 and with the law
faculty of the University of Stellenbosch in South Africa. Earlier joint confer-
ences have been organized and books have been published together with South
African colleagues and the Scottish and South African colleagues5 have
always attended the annual conferences of the Ius Commune Research School.
During a dinner at an annual conference of the Ius Commune Research
School organized by the Utrecht Law Faculty in November 2006, a group of
South African and European Ius Commune scholars sat together, brain-
storming the abovementioned problems concerning the making of private law
in the age of globalization. It was the conviction of the participants in that
brainstorming session that globalization poses specific problems for the
making of private law that have not been sufficiently studied and that merit a
thorough comparative analysis. It was decided that a combination of insights
from European scholars interested in the harmonization debate and South
African experience with mixed legal systems could enrich the common
research agenda.
As a result of that discussion, a first exploratory research workshop was
organized at the Stellenbosch Institute for Advanced Study (STIAS) on 6–8
December 2007, where during three days 12 papers were presented, intense
discussions took place and comparative conclusions were drafted. On the basis
of this first workshop it was decided that the time was not right yet for a
2 http://www.iuscommune.eu.
3 See generally on mixed legal systems the contributions to Smits (2001, p.
126).
4 Which inter alia organized the annual conference of the Ius Commune
Research School in 2005.
5 See for example van Maanen and van der Walt (1996, p. 687); Faure and
Schwarz (1998, p. 283); Faure and Neethling (2003, p. 230).
6 Globalization and private law
3 METHODOLOGY
The organizers of the seminars consisted of the editors of this book, together
with Jan Smits (Tilburg University) and Jacques Du Plessis (Stellenbosch
University). The organizers were of the opinion that an attempt to provide a
useful contribution to the debate on the influence of globalization on private
lawmaking necessitates a combination of various methodological
approaches.
As will be clear from the table of contents, we have looked for insights from
various legal disciplines and authors, who have tried to integrate various
legal disciplines into their chapters. Of course, the traditional private law
legal approach is followed by many contributors (for example Smits), while
others look at the influence of harmonization in the area of international
trade law on private law (Sieg Eiselen). Crucial for a better understanding of
the lawmaking process in private law is obviously the incorporation of
insights from public law scholars. They pay attention to the fact that the
traditional boundaries between public and private law become increasingly
blurry since state actors increasingly use private law to reach their goals
(Geo Quinot and Frits Stroink). Particular case studies looking at the influ-
ence of globalization on specific areas of the law also provided valuable
insights, for example focusing on the domains of company law (Bas Steins
Bisschop and Philip Sutherland), procedural law (C.H. van Rhee) and envi-
ronmental law (Michael Faure and Jaap Spier). Specific attention was paid
in many contributions to the increasing influence of human rights, obviously
in constitutional interpretation (Lourens du Plessis), but also in private law
(Siewert Lindenbergh).
Introduction and editorial preface 7
3.3 Multidisciplinarity
Even though this book started from a seemingly straightforward legal question
(how globalization affects private lawmaking) it soon became clear that one
needs more than ‘hard’ law to be able to answer this question. Hence, the
second chapter (by Deirdre Curtin) promptly addresses fundamental notions of
democracy and accountability and draws lessons from political science to
explain how the notions of legitimacy and accountability could be interpreted
in a meaningful way in the debate on private lawmaking. The fundamental
question of whether globalization necessarily leads to global lawmaking is one
which has also been extensively dealt with in economic literature. Hence,
some chapters are especially devoted to the question of whether the economic
analysis of law also provides useful insights for the (normative) question as to
what types of issues should be regulated on a central rather than a decentred
level (Roger Van den Bergh and, regarding environmental problems, Michael
Faure).
4 TOPICS
It may be clear from the broadly formulated and ambitious research agenda
(see Section 1) that various major issues can be distinguished:
structures that can provide the backing for globalization (such as the
constitutionalization of private law and the influence of international
institutions and structures). Attention can also be given to the nature of
the legal reaction to globalization, more particularly as far as the impor-
tance of self-regulation for private law is concerned.
• A closely related topic is of course whether the distinction between
public and private law is still valid today in this globalizing context.
Above it was pointed out how public law evolutions affect private law
as well. That merits the question of whether the traditional distinction
between these systems, at least in civil law, should still be maintained.
This unavoidably also reopens the classic distinction between the civil
and common law systems, because in the common law the traditional
dichotomy between private and public law always had a different mean-
ing from that in civil law jurisdictions.
Of course these major issues are still rather broadly formulated. The orga-
nizers of this research project formulated ten more specific questions that
might play a role in the debate on the influence of globalization on private
lawmaking. Without suggesting that all of these topics would be fully dealt
with in the chapters in this book we identified at least ten that were to a larger
or smaller extent touched upon:
5 CENTRAL FOCUS
It may be clear that dealing at length with these ten topics would require ten
books rather than one. This collection of chapters can hence do no more than
touch upon these issues in the hope of contributing to the research agenda in
this domain. It was suggested to the contributors that under the broad heading
of ‘the influence of globalization on private lawmaking’ a few central issues
play a role:
1. It is a financially and economically unavoidable fact that the shape and the
scope of private law have changed and are still changing under the pres-
sure of globalization.
2. This influence is combined with institutional changes such as the increas-
ing influence of norms of a higher level (like human rights) that also shape
private legal relationships.
3. Private law seeks remedies to both challenges by looking for new institu-
tional structures at different levels (multi-level governance), but to some
extent also outside the traditional legal arena (for example, through self-
regulation).
Bas Steins Bisschop addresses the role of globalization in the resolution of the
credit crisis in Chapter 8. Chapter 9, by Philip Sutherland, addresses global-
ization and corporate law.
Part V focuses on procedural issues and consists of Chapter 10, by C.H. van
Rhee, on civil procedure in a globalizing world.
Part VI focuses on human rights and environmental issues. Chapter 11, by
Siewert Lindenbergh, deals with fundamental rights in private law and asks
whether these are anchors or goals in a globalizing legal order. Chapter 12, by
Michael Faure, addresses globalization and multi-level governance of envi-
ronmental standards; while Jaap Spier asks whether there are particular obsta-
cles for shaping the law to meet the demands of a civilized society, particularly
in relation to climate change (Chapter 13).
Part VII consists of Chapter 14, which contains a set of comparative and
concluding remarks by the editors.
7 CONTRIBUTORS
The contributors to this book come, as was made clear, from various universi-
ties in Europe and South Africa. Michael Faure, Bas Steins Bisschop, Frits
Stroink, C.H. van Rhee, Jan Smits and Jaap Spier are (or at least were, in the
case of Jan Smits) connected (full-time or part-time) to Maastricht University.
Michael Faure also works at the Erasmus University Rotterdam, as do Siewert
Lindenbergh and Roger Van den Bergh. Deirdre Curtin is affiliated to the
University of Amsterdam. Lourens du Plessis, Geo Quinot, Philip Sutherland
and André van der Walt are all connected to Stellenbosch University in South
Africa. Sieg Eiselen is affiliated with the University of South Africa. A
complete list of the contributors and their affiliations is provided in the list of
contributors in the preliminary pages.
8 ACKNOWLEDGEMENTS
As editors of this book we are grateful to many people who made this project
possible. In this respect we refer especially to the two conferences held in
December 2007 and December 2008 in Stellenbosch. First of all we would like
to thank the Stellenbosch Institute of Advanced Studies (STIAS) for facilitat-
ing the December 2007 conference and the University of Stellenbosch Law
Faculty and more particularly the Dean, Gerhard Lubbe, for organizing (and
financially supporting) the December 2008 conference. As editors we owe
special thanks to William Binchy (Trinity College, Dublin), Jacques du Plessis
(Stellenbosch) and C.H. van Rhee (Maastricht) for providing excellent
12 Globalization and private law
Michael Faure
André van der Walt Maastricht/Stellenbosch, June 2009
REFERENCES
Faure, M. and J. Neethling (eds) (2003), Aansprakelijkheid, Risico en Onderneming:
Europese en Zuid-Afrikaanse Perspectieven, Antwerp: Intersentia.
Faure, M. and C.A. Schwarz (eds) (1998), De Strafrechtelijke en Civielrechtelijke
Aansprakelijkheid van de Rechtspersoon en Zijn Bestuurders, Antwerp: Intersentia.
Seita, A.Y. (1997), ‘Globalization and the Convergence of Values’, Cornell
International Law Journal, 30, 429–91.
Smits, J.M. (ed.) (2001), The Contribution of Mixed Legal Systems to European Private
Law, Antwerp: Intersentia.
Van Maanen, G.E. and van der Walt, A. (eds) (1996), Property Law on the Threshold
of the 21st Century, Antwerp and Apeldoorn: MAKLU Uitgevers.
PART I
1 INTRODUCTION
The development towards a Common Frame of Reference for European
private law1 not only raises questions about what should be the contents of
private law rules for the European Union,2 but also challenges our traditional
understanding of how rules of private law should come into being. In the
European Member States, private law is traditionally ‘made’ in close cooper-
ation between the national legislatures and the courts: it is the result of an intri-
cate decision-making process at the national level (in which legal academia is
often also involved3). This is, to varying degrees, true for both civil law and
common law jurisdictions.
The drafting of the Common Frame of Reference and of other forms of
non-State law prompts the question of to what extent these instruments should
meet similar requirements as to legitimacy as the national rules in the Member
States. The prevailing view seems to be that the rules of the Draft CFR
(DCFR) do not meet the requirements of democratic legitimacy necessary in
the field of private law. Given that the DCFR was drafted by legal scholars,
united in the Study Group on a European Civil Code and in the Research
15
16 Globalization and private law
Group on the Existing EC Private Law, the DCFR would, in this respect, be a
typical example of Professorenrecht. This is also acknowledged by the
drafters, who presented their text as an ‘academic CFR’, a scholarly product
that is not politically legitimized and that, at best, could form the basis for a
‘political CFR’ to be drafted by the European Commission. But it is difficult
to deny that, in the drafting of the DCFR, many relevant choices were made.
In a recent book, Bastiaan van Zelst therefore sketches the following objec-
tions against this working method:4
This seems worrying from two different angles. First of all, the scholars that are
involved in the drafting of the DCFR lack democratic legitimacy. The group repre-
sents neither all of the populations of the Member States, nor their political convic-
tions. Secondly, it is questionable whether professors should be vested with the
translation of social-political reality into legislation. In a democratic society, this
would seem to principally be the task of the (democratically legitimized) legisla-
ture.
Other authors, most of them united in another group, namely the Study
Group on Social Justice in European Private Law,5 also hold the view that the
Europeanization of private law should take place in a much more democratic
way than is the case at present. This would not only be true for the DCFR but
for any attempt to create a European private law. These authors are clearly
influenced by the Critical Legal Studies view that all law (including private
law) is politics.6 In other words, if private law shapes the distribution of wealth
in a modern society, creating a future European private law would primarily
be a political process. Therefore, the rules of contract law that account for the
right balance between the free market and social justice should be determined
in a democratic way. Only consulting ‘stakeholders’ and legal practice in draft-
ing new European rules – as the European Commission proposes – is then not
enough; instead, the European Parliament and national legislators (including
national parliaments) must be involved.7 From a different theoretical perspec-
tive, Alain Verbeke recently also argued that the Europeanization process of
private law should be ‘re-politicized’.8 This is an important view: if these
authors are correct about their ‘democracy thesis’, it means that European
private law needs to be ‘made’ in a very different way from how it is now.
In this chapter, I argue that this view (the ‘democracy thesis’) is mistaken.
The present Europeanization and globalization processes should radically
change our view of how rules (either existing or new ones) in the area of
private law are legitimized. My aim is not to reiterate the entire debate about
the legitimacy of new modes of governance,9 but to focus directly on rules that
seek to regulate the conduct of private parties. It is thus the core of private law,
and specifically the law of contract, with which I am concerned. In this area,
I argue that there are different (and better) ways of legitimizing private law
outside national parliaments.
This chapter is structured as follows. Section 2 begins with a more general
overview of new types of rule making that, although they evade the democra-
tic decision-making process, are important in regulating the behaviour of indi-
viduals and States. This raises the question of to what extent the emergence of
these new types of rules poses a problem for the legitimacy of private law. I
argue that the problem arises only if we perceive legitimacy in a very restric-
tive way, limiting it to democratic decision making by national parliaments.
Section 3 therefore proposes an alternative approach, a functional one, in
which the concept of democracy is deconstructed into various building blocks.
This more general theoretical framework should then allow us to assess the
Draft CFR in more detail in Section 4. Section 5 sums up the main argument.
9 Cf. for example Curtin and Wessel (2005) and Eberlein and Kerver (2004, pp.
121–42) at p. 121.
10 See for this term Teubner (1997, pp. 149–69) at p. 157.
11 For an elaboration of the idea of private law beyond the nation state, see
Michaels and Jansen (2006, pp. 843–90); Jansen and Michaels (2007, pp. 345–97) and
the special issue of the American Journal of Comparative Law (2008, pp. 527–844).
12 Cf. recently Piergiovanni (2005).
18 Globalization and private law
supplemented by the lex laboris internationalis13 and the lex sportiva interna-
tionalis.14 In addition to this, types of voluntary law,15 such as norms adopted
by corporate networks (the most important example being codes of conduct
for corporate social or environmental responsibility), rules of standardization
organizations for technical standards (such as the codex alimentarius) and
other types of self-regulation16 are also supposed to influence the conduct of
private parties.
Most of these authoritative rules, norms and policies from ‘sites of gover-
nance beyond the nation-state’17 would not count as binding law in a tradi-
tional conception of legal rules: they do not meet the formal criterion of being
enacted by the relevant authorities. But they often do set the norms for specific
groups of people and are important in predicting their behaviour. One can
argue that, as the legitimacy of law was found in the laws of nature in the
seventeenth and eighteenth centuries and in democratic political legislation in
the nineteenth and twentieth centuries, it is now again time to find a new
source of legitimacy for legal rules.18 It is clear that such a new source of legit-
imacy cannot be found in the authority of the State. Not only is the authority
of the norms that were just described not dependent on the State, their author-
ity is also no longer exercised within clearly defined territorial entities;
instead, the relevant rules are often chosen and applied across existing
borders.19 Issues that were previously within the domain of democratic deci-
sion making at the national level have thus shifted to the international level.
If we accept that this type of lawmaking beyond the national State is
becoming more and more important, what does this mean for the democratic
legitimacy of the rules created in this process? In a recent article, Grainne de
Burca distinguishes several approaches in understanding the relationship
between democracy and transnational law.20 If legitimacy is a legal concept
that cannot be replaced by efficiency or expertise (meaning: public power
exercised outside the authority of the State should not escape the expectation
of democratic legitimation21), the best approach is one that tries to find alter-
natives for democracy. The democratic ideal should then be pursued in forms
other than through the national parliament. With the multiplication of legal
sources, the need for such a rethinking of democracy is very clear.22 The
opposing view – now that there is no transnational demos and electorate,
democracy at another level than the national one is impossible23 – cannot be
accepted.
The important insight to be derived from this is that (private) law does not
necessarily have to find its legitimacy in the decisions of national parlia-
ments.24 Such a view would regard legitimacy in a very restrictive way. It is
true that, since the eighteenth century, democracy has been closely associated
with the State, but this need not be the case. The idea of democracy was
present long before the nation-state was developed,25 and now that we accept
law that transcends the boundaries of a territory and a people, we need to again
dissociate democracy from the State. The question therefore is how to change
our conception of law, very much based on the nation-state experience, so as
to meet the different conditions of global governance.26 The importance of
such a venture is paramount because, as one author puts it: ‘Democracy will
be possible beyond the nation-state – or democracy will cease to be possible
at all.’27
3 DECONSTRUCTING DEMOCRACY
The approach followed in this section is one in which the concept of democ-
racy is deconstructed into various building blocks. If we are able to define the
functions of democracy, it is possible to establish whether these functions can
also be fulfilled in another way in the area of European (or even global)
lawmaking. It is clear that finding such substitutes for the democratic legiti-
macy of law is only possible when we stop thinking in terms of national States
or parliaments. Instead, the legitimacy of law should be found in other factors.
It is also important to realize that our concern is not with all aspects of democ-
racy or of tasks of national parliaments: as indicated above, this chapter only
deals with the lawmaking process, in particular in the area of private law.
Having said that, this section first suggests that it is not democracy that is at
22 Also see Weiler, quoted by de Burca, o.c., (2008) at p. 105: ‘What is required
is … a rethinking of the very building blocks of democracy to see how these may or
may not be employed in an international system which is neither State nor Nation.’
Reference is sometimes made to the need for a ‘cosmopolitan democratic theory’.
23 See Dahl (1999, pp. 19–36) and Dahl (1998).
24 See for this debate also Michaels and Jansen, o.c., (2006) at p. 879, criticized
by Rödl (2008, pp. 743–67) at p. 751.
25 Dunn (2005).
26 See Habermas (2001a) at p. 58.
27 Pelinka (2003).
20 Globalization and private law
stake when drafting law, but rather the legitimacy of the rules in question.
Second, it is argued that such legitimacy can be found in three different
factors.
It should first be acknowledged that it is difficult to use the term democracy
for something that is not related to representative government. The present
connotation of the word refers so much to parliamentary representation that it
can be confusing to use it for mechanisms that are equal to democratic decision
making at other levels than the State. This is one of the reasons why Rubin
suggests that we should abandon the term in political analysis.28 It seems better
to use the word legitimacy instead, even though this term does not have a fixed
meaning.29 The legitimacy of a rule could refer to the political procedures used
to put that rule into place, but also to its moral contents or acceptance. In my
view, it is this latter meaning that is most important: the legitimacy of a rule
refers to the perception that it is the most desirable or proper rule to be adopted
in the given circumstances.30 This makes legitimacy dependent not only on the
acceptability of those being affected by the rule but also on the acceptance by
society in general or by the academic forum.31 It still leaves open the question
of which criteria are decisive for this legitimacy to exist.
Political science tells us that democracy fulfils three different functions:
participation, accountability and transparency.32 Participation at the national level
traditionally consists of the parliamentary representation of everyone in every-
thing. However, when the polity is no longer defined along territorial lines or on
the basis of a people – as is the case with the type of rules discussed here – such
participation can no longer be based on State institutions. With the transnational-
ization of law, the more effective forms of participation are likely to be based on
groups, creating new political communities along functional lines.33
Accountability can be defined as the principle that one is responsible for
one’s conduct vis-à-vis another person or organization. Such responsibility
39 De Burca, o.c., (2008) at p. 107 claims that we need to have ‘the fullest possi-
ble participation and representation of those affected.’
40 See Héritier (1999, pp. 269–82) at p. 270.
41 See, for example, Fischer (1990).
42 De Burca, o.c., (2008) at p. 122.
43 There is no need to refer to the extensive literature on public choice. Instead
of all, see Farber and Frickey (1991).
44 Democratically made deficient legislation can lead to people questioning the
usefulness of democracy as a whole. See Goldring (1996).
Democracy and (European) private law 23
45 One other way of enhancing accountability is to label and rate types of self-
regulation or even of contracts: see Ben-Shahar (2008).
46 Tiebout (1956, pp. 416–24). Also see Ogus (1999, pp. 405–18).
47 See in more detail, also on the question of ‘voice’ and ‘exit’, Smits (2008, pp.
49 ff.).
48 Thus Hadfield and Talley (2006, pp. 414–41) at p. 415.
49 Cf. Hadfield and Talley, o.c., (2006) at p. 415.
24 Globalization and private law
It was seen above53 that the legitimacy of rules does not necessarily have to be
based on the participation of everyone in everything. The adherents of the
‘democracy thesis’ set out in Section 1 seem to suggest the opposite: since all
law is politics, changing the law requires a political decision by a parliament
that should be involved in both the drafting and the adoption of the rules. This
is a rather traditional view of democratic input and one that is clearly contra-
dicted by our experience with the drafting of civil codes.
First, even mandatory national civil codes were often drafted without much
input from parliaments. It is true that the final decision about the enactment of
a code is taken by national parliaments (and when it would come to the intro-
duction of a binding European Civil Code, this should also be the case), but in
drafting the code the relevant decisions are usually made by the drafters them-
selves.54 This makes sense because of the often highly detailed and technical
questions involved in the drafting process. Only when it comes to politically
system, which provides us with the criteria to assess to what extent the new
rules fit into the existing normative order.57
At the same time, however, we should be cautious in applying the require-
ment of transparency to the field of private law as if this is just another policy
field. The reason for this relates to a more general understanding of private
law. It would only be necessary to render private law completely subordinate
to democratic decision making if it is a means to a (political) end.58 The ques-
tion is whether this view of private law as a matter of conscious design by
some legislator is in line with the nature of the field. Most of the time, private
law is seen as independent from State institutions, having a rationality of its
own.59 The private law system has developed over the ages in a long process
of trial and error.60 The spontaneous development towards the standards that a
community prefers provides this area of law with a rationality of its own which
is independent from most public aims.61
If we thus understand private law more as an organism than as a product of
explicit design, it becomes clear why democratic input in this area of law can
only have a limited impact. The Machbarkeit (‘makeability’) of the law of
contracts, tort and property is limited, and the view that private law is an
instrument with which to change the existing distribution of power and
riches62 should be regarded with suspicion. This would mean that private law
serves distributive justice, a view defended before by Anthony Kronman.63
The most important objection against this position is that distributive justice
requires a political decision to choose, out of all possible distributions of
wealth, one that best establishes the desired collective social, economic or
political goal. If private law is thus made part of establishing distributive
justice, it is made subordinate to this goal; if this goal is not reached, private
law fails. In my view, however, it is not the State that is to decide ex ante what
a just private law requires. At best, the result can be corrected ex post.64
Moreover, the redistribution of welfare through (in particular) contract law is
57 This can be argued for from different theoretical perspectives. See, for exam-
ple, Weinrib (1995) and Dworkin (1985).
58 Cf. Tamanaha (2006).
59 See, for example, Weinrib (1995); cf. for a general framework, see Jansen
(forthcoming, 2009).
60 This is not to deny there are differences between civil law and common law,
though not as profound as suggested by, for example, Glaeser and Shleifer (2001, pp.
1193–1229).
61 Cf. Hayek (1973–79).
62 Cf. Study Group on Social Justice in European Private Law, o.c., (2004, pp.
653 ff).
63 Kronman (1980, pp. 472–511).
64 Cf. Weinrib, o.c., (1995), pp. 211 ff.
Democracy and (European) private law 27
doomed to fail because future contracting parties are not likely to contract with
‘weaker’ parties if they would run the risk of avoidance of their contract. This
is also the message of Charles Fried:65
The above does not imply that democratic input is never useful; it does imply,
however, that the degree of legitimacy is dependent on the type of law being
put into place. Facilitative law needs less legitimacy than mandatory law. Put
otherwise: (national) democratic input is useful in the case of interventionist
law (such as consumer protection and employment law) because preferences
as to the level of intervention differ between countries. In facilitative law, pref-
erences are better revealed by jurisdictional competition.66
5 CONCLUSIONS
The main argument of this chapter is that ‘democratic’ legitimacy does not
have to come about through territorial entities such as national parliaments.
There are other methods of legitimating law; which method is best depends on
a range of factors such as the type of rules and the level of harmonization. In
the case of the Draft CFR, it is important to realize that it is at most a source
of inspiration for (European and national) legislators and courts and an
optional code to be chosen by contracting parties if they believe it serves their
interests better than national law. This optional character of the DCFR must
mean something for its legitimacy. It is primarily the participation of the
mentioned actors that decides on the actual legitimacy of the non-binding
DCFR. This does not exclude that parliaments can still play a role – for exam-
ple, by ex post accepting ‘public acts characterized by expertise and rational-
ity’67 – but it is different from the role they have to play in setting mandatory
rules.
The approach set out in this chapter opens the possibility to investigate
whether the new types of law described in Section 2 meet the necessary
requirements of legitimacy. The mere fact that these types of law are often set
at the European or global level and do not pass through national parliaments
is, as such, not relevant in assessing their merits. What is relevant is to what
extent they meet the requirements of participation, accountability and trans-
parency. This differentiated approach, in which each new type of rules is
assessed on the basis of these factors, was applied here to the case of the
DCFR. It shows that the ‘democracy thesis’ cannot be accepted: new forms of
private law require new forms of legitimacy.
REFERENCES
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Black, J. (2008), ‘Constructing and Contesting Legitimacy and Accountability in
Polycentric Regulatory Regimes’, LSE Legal Studies Working Paper, 2.
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Kluwer Law International.
Cafaggi, F. and H. Micklitz (2010), European Private Law after the Common Frame of
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Antwerp: Intersentia.
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Democracy and (European) private law 29
1 INTRODUCTION
Governance beyond the state, in whatever institutional or informal forum it
takes place, largely lies beyond the control of national democracies and consti-
tutional structures. The core problem is that outside the confines of the terri-
torial nation states, executives are only to a very limited extent held to account
for their actions and inactions. National parliaments in particular have not kept
up with what their national executives are doing and not doing. While national
parliaments have stayed put within their own neatly nationally fenced off
compartments, the executive has developed into a strongly interwoven,
complex administrative network, beyond the horizons of many, maybe all
national parliaments. The national executive power operates outside of its own
national political and constitutional level. It is active and engaged in decision
making at the European level and at the international or global level. It has as
a matter of practice surmounted thinking in terms of hierarchical levels and
may even be considered as engaged in a more fluid and composite governance
process.1 This is even more the case for other, private, actors performing
public functions at the transnational or European level. It is moreover relevant
in this context not only that general rule-making processes may fall outside
domestic processes of political accountability but also that there are no coun-
tervailing forces, no or little checks and balances at the regional and global
levels of governance.
This chapter takes as its broad backdrop the growth of governance beyond
the state. In particular it highlights the shift of governance that has taken place
32
Public accountability of transnational rule making 33
across legal and political systems and the fact that a wide variety of groups,
organizations and networks are making authoritative rules and policies outside
the democratic and constitutional confines of the state.2 Governance – as
opposed to government – covers, among other things, policy coordination
between public and private actors, often across multiple levels of government
and through formal and informal networks of actors. Whereas ‘government’ is
traditionally understood as involving a distinction between who is governing
(the government as executive power) and who is being governed (the citizen),
‘governance’ at the very least blurs that distinction. There is a significant
erosion of the boundaries separating what lies inside a government and its
administration and what lies outside them.3
This contribution was originally written at the request of the organizers of the
final conference in Stellenbosch in December 2008 with a view to initiating a
broader debate among private lawyers on the relevance of themes of public law,
in particular those relating to democracy and accountability, to the manner in
which private law or rule making is increasingly taking place in our globalizing
world. The purpose of this chapter is threefold. Firstly, to consider the nature of
the phenomenon of a shift in governance and in particular its possible relevance
to (European) private lawyers. Secondly, to examine how this relates to our
existing understandings of democracy in the nation state. Finally, to consider
how we might apply more limited conceptualizations of accountability to rela-
tively new shifts in governance beyond the nation state. Can we develop democ-
racy beyond the nation state or should we instead rely on more limited and
confined understandings? This chapter offers what might be termed a European
Union perspective on these broad themes, drawing many of its examples from
the often highly institutionalized context of the European Union. At the same
time the argument is made that the debate – and some of the solutions – are of
relevance in a much wider global and also informal transnational context.
The use of the term ‘governance’ even by private lawyers is becoming increas-
ingly widespread and accepted.4 It is used to indicate broader phenomena than
2.2 Actors
18 http://www.cesr-eu.org/.
19 See De Larosiere et al. (2009), para. 67.
20 See further Sabel and Zeitlin (2008, pp. 271–327).
21 See here for instance the directives that together form the ‘consumer acquis’:
Council Directive 85/577/EEC to protect consumers in respect of contracts negotiated
away from business premises; Council Directive 90/314/EEC on package travel, pack-
age holidays and package tours; Council Directive 93/13/EEC on unfair terms in
consumer contracts; Directive 94/47/EC on the protection of purchasers in respect of
certain aspects of contracts relating to the purchase of the right to use immovable prop-
erties on a timeshare basis; Directive 97/7/EC on the protection of consumers in respect
of distance contracts; Directive 98/67EC on consumer protection in the indication of
the prices of products offered to consumers; Directive 98/27/EC on injunctions for the
protection of consumers’ interests; Directive 99/44/EC on the sale of consumer goods
and associated guarantees.
22 See Smits (2006, pp. 57–104).
38 Globalization and private law
the Draft Common Frame of Reference (hereafter Draft CFR)23 are all legal
scholars, combined in two main groups: the Study Group on a European Civil
Code (SGECC) and the Research Group on EC Private Law (Acquis Group).
The current draft is the result of the work of hundreds of legal scholars from
all Member States. The European Commission, however, has primarily funded
the project since 2005 as a ‘Network of Excellence’ within the Sixth
Framework Programme.24
Interestingly and perhaps quite specific to the character of private law as
historically one of the most ‘scientific’ areas of legal scholarship,25 even the
internal evaluation of the Draft CFR is carried out by academic fora, notably
the Association Henri Capitant des amis de la culture juridique française and
the Société de législation comparée, which have already published ‘Principes
contractuels communs’ and ‘Terminologie contractuelle commune’.26
Furthermore, the European Parliament, indicating the possible ‘political’
nature of private lawmaking and in particular the current Draft CFR itself, has
contracted out the evaluation of the underlying social values of the articles of
the DCFR to be assessed by an academic research group.27 This research
group was highly involved in the drafting of the DCFR via their participation
in the Study Group on a European Civil Code, but at the same time was part
of a more critical group of academics that expressed their political concerns
about the role of social justice in the process of the activities of the
Commission in the area of private law.28
This identity association of experts reveals the enormous influence acade-
mic scholars may have in the area of private lawmaking. They may in fact be
considered by some to be taking essentially ‘political’ decisions, evaluating
and assessing the social values of the rules they themselves have drafted. The
ideological divides are debated by academics and the outcome of these debates
is then presented to the European Commission or the Parliament.
2.3 Instruments
The second issue relates to the nature of the instruments or measures agreed to
or adopted: what is their normativity and what are the implications of the fact
that they may be ‘soft’ in legal terms? The term ‘hard law’ is often used to refer
to legally binding obligations that are precise (or can be made precise through
adjudication or the issuing of implementing regulations) and that delegate
authority for interpreting and implementing the law. This would include, for
example, at the level of the EU legal order, in any event, formal treaty-based
provisions as well as what can be termed ‘secondary legislation’ and delegated
and implementing legislation as we have mentioned above.
This is not to deny that non-binding rules can be legally significant and
form part of the legal order in question. Indeed, private lawyers seem to rather
easily accept this proposition. We see that clearly with the emphasis that is
placed on codes of conduct, self-regulation, co-regulation, benchmarking and
other non-binding measures. The temptation to depart from formal methods of
lawmaking has already existed for quite some time and has led to the produc-
tion of open-ended standards, flexible guidelines and other forms of ‘soft law’
as opposed to formal rules and ‘hard law’. For example, in the discussion of
‘new governance’ in the EU, the concept of ‘soft law’ is often used to describe
governance arrangements that operate in place of, or along with, the ‘hard law’
that arises from binding legal instruments for European integration. The main
features of this governance mode consist of setting framework goals (1) and
indicators (2) to measure achievements of more or less autonomous actors (3)
that in return for their autonomy have an obligation to report and whose deci-
sions are open to peer review (4). New governance methods lack features such
as obligation, uniformity, justiciability and sanctions and are contrasted, some-
times positively, sometimes negatively, with hard law as an instrument for
European integration.
The Draft CFR is for example meant to be a tool for making European
contract law more coherent.29 It was to serve as a ‘toolbox’ for the revision of
the Aqcuis Communautaire, but also should ‘provide for clear definitions and
on best solutions found in Member States Legal orders’.30 At one point it was
indeed envisaged as the basis for an optional European Code for European
contract law. However, the idea of an optional European Civil Code, either
only in the area of contract law or more generally, has moved, it seems,
2.4 Levels
The third issue is the question of the level of governance: from beyond the
territorial states to either the regional level of governance or the more global
level of governance. The shifts in governance and public authority in recent
decades away from the territorial state towards different forms and levels of
governance, within and beyond the parameters of the traditional nation state,
have not been matched by a shift in accountability relationships beyond those
applicable within the confines of the territorial state. This results in gaps in the
accountability of (public) actors for the exercise of public authority. Though
31 See the Second Progress Report on The Common Frame of Reference, of July
2007 (2007, p. 447).
32 See European Contract Law and the Revision of the Acquis: The Way
Forward, of October 11 2004, (2004, p. 651); also see the Green Paper on the Review
of the Consumer Acquis, February 2007 (2007, p. 744).
33 See Programme of the Czech Presidency in the Council of the European
Union in the Area of Justice and Home Affairs, Council of the European Union
(Brussels, 5 February 2009, 6155/09); also see Proposal for a directive of the European
Parliament and of the Council on consumer rights, COM(2008) 614 final, 2008/0196
(COD).
34 European Parliament resolution of 3 September 2008 on the common frame
of reference for European contract law (P6_TA-PROV(2008)0397).
Public accountability of transnational rule making 41
accountability gaps may well have always existed even where public powers
were predominantly exercised within the confines of the state, the shift of
powers away from the state have made the gaps much more politically salient
and acute.
It is in response to the shifts in governance and the slow attempts to close
gaps in the control over the exercise of public power that scholars have
engaged in a much more fundamental and wide-ranging discussion of the
potential and limits of the concept of accountability as a (political) mechanism
for controlling public power, wherever exercised and in whatever form.
Initially, these discussions took place mainly within the disciplines of interna-
tional relations as well as public administration; in recent years, however, this
theoretical debate has started to trickle into the manner in which some inter-
national law scholars study the concept of accountability and its application in
practice in the international legal order. The next part of this chapter will
explore, in a preliminary manner, the relationships between the ‘meta’ themes
of any political system, legitimacy and democracy, before explicitly focusing
on the more ‘second-order’ theme of accountability and its possible opera-
tionalization in practice.
A new and unfamiliar political system; it has substantial powers to go into the nooks
and crannies of member societies; its rules over-ride those made by national insti-
tutions; it takes decisions that affect ordinary lives; it demands sacrifices, some-
times with uncertain long-term reward; it takes from some in order to give to others;
it affects deeply held values, including basic feelings of identity; and it is a large
political system that often seems physically distant to its citizens.38
Should we then really be surprised in this intrusive and uncertain context that
citizens feel a sense of alienation of feeling and of understanding from the EU
as a whole? With regard to the executive power they can only feel that they do
not elect it for the functions it carries out, either at the national level or at the
European level, and the deficit of affective loyalty cannot in these circum-
stances be considered surprising. But they also often do not see it and do not
recognize it for what it is (with elements of national executive power interwo-
ven with the EU level).
A second way of looking at the legitimacy challenge is through the lens of
input legitimacy versus output legitimacy. Output legitimacy means that
people agree that a particular structure should exist, and even participate in
rule making, because of the benefits it brings. Social acceptance is thus instru-
mental and conditional, as well as independent of an affective relation. Input
legitimacy, on the other hand, means that social acceptance of the structure in
question derives from a belief that citizens have a fair chance (however under-
stood) to influence decision making and scrutinize the results. The ability to
influence and hold accountable can be realized either through forms of repre-
sentation which are held to be legitimate or through direct participation which
is held to be meaningful, or through some combination of the two. On the
whole, the legitimacy of the EU and its decisions has tended to be focused on
the output side of the equation39 rather than on the input side.
In terms of Lincoln’s famous description of the main elements of democ-
racy, input-oriented legitimacy refers to government by the people, whereas
output-oriented legitimacy refers to government for the people. The basis of
legitimacy of these different kinds or rather different aspects of democracy is
different.40 From the perspective of input-oriented legitimacy, political
choices are legitimate if and because they reflect the ‘will of the people’ – that
is, if they can be derived from the authentic preferences of the members of a
community. The input perspective derives its democratic legitimacy very
largely from a pre-existing collective identity. In so far as a collective identity
does not exist at the level of the Union, input-oriented legitimacy is out of
reach for the EU for the foreseeable future. This can be considered true at the
level of democratic representation via a compound system of representative
democracy (see below) or via the methods of direct democracy (in particular
the use of referendums at crucial decision-making moments).
From the perspective of the more modest form of legitimacy – output-
oriented legitimacy – political choices are legitimate if and because they effec-
tively promote the common welfare of the constituency in question.41
Government for the people derives its legitimacy from its capacity to tackle
problems requiring collective solutions. Identifying collective solutions still
presupposes the existence of an identifiable constituency, but what is required
is no more than the perception of a range of common interests that is suffi-
ciently broad and stable to justify institutional arrangements for collective
action.42 Output-oriented legitimacy is thus interest-based rather than identity-
based.43
It is often assumed that input legitimacy is not possible in the context of the
EU political system for the major structural reasons (no demos, no collective
identity, no European public sphere, and so on). Yet empirically it is notewor-
thy that there has been movement both in the political (and even treaty reform)
debate as well as in practice to introduce elements of a more participatory
approach to executive rule making, more grounded in theories of deliberative
associated with the process of being called ‘to account’ to some authority for
one’s actions. Such accountability has a number of features: it is external, it
involves social interaction and exchange, and it implies rights of authority in
that those calling for an account are asserting rights of superior authority over
those who are accountable, including the rights to demand answers and to
draw consequences, possibly including the imposition of sanctions. This sense
of accountability is in line with the broad sense that Grant and Keohane (2005)
describe: ‘accountability’ as involving the justification of an actor’s perfor-
mance vis-à-vis others, the assessment or judgment of that performance
against certain standards, and the possible imposition of consequences if the
actor fails to live up to applicable standards.
In the context of a democratic state, the key accountability relationships in
this core sense are those between citizens and the holders of public office, and
within the ranks of office holders those between elected politicians and
bureaucrats. Such accountability relationships are obviously familiar terrain
for lawyers at the national level, much less so at the international level. Indeed,
at the international level where the principle of democracy has made only a
limited entry at the level of the international legal order itself as well as with
regard to the institutionalization of international organizations, a broad
concept of ‘accountability’ is less familiar. International lawyers have tradi-
tionally focused on well-established legal principles such as state responsibil-
ity, and the operationalization of a broader concept of accountability in the
sense of an actor being held to account in an iterative and interactive process
is still nascent.
In recent years it has in particular been in the context of the European
Union that a rather explicit discussion has taken place on core accountability
issues such as how voters can make their elected representatives answer for
policies, how legislators (at both the national and the European levels) can
scrutinize the actions of (European and national) public servants and make
them answerable for mistakes, and so on. In fact, that discussion even goes so
far as to enable Walter van Gerven, a prominent European legal scholar, actu-
ally both a public lawyer and a private lawyer, to rather provocatively ask,
‘Which form of accountable government for the European Union?’54 One can
hardly envisage asking an equivalent question for any other international orga-
nization.
Much less effort has gone into studying other manifestations of the inter-
nationalization of politics at other levels than that of the EU. The ‘backstage’
politics of international and informal policy preparation (committee processes,
bureaucratic politics and horizontal networks) and implementation remain
55 See for example Van Schendelen (1998); Richardson (2000); Christiansen and
Kirchner (2000); Rhinard (2002, pp. 185–210); Kassim (2003, pp. 132–60); Page
(2003, pp. 162–76); Gerardin et al. (2005) and Egeberg (2007).
56 See for example Hesselink (2004) and Smits (2008).
48 Globalization and private law
a social relationship between an actor and a forum, in which the actor explains his
conduct and gives information to the forum, in which the forum can reach a judg-
ment or render an assessment of that conduct, and on which it may be possible for
some form of sanction (formal or informal) to be imposed on the actor.59
debating their agents’ points of view that lie at the heart of their input in
Brussels.60
Another ongoing study involves taking a step back from ex post account-
ability practices to focus on the degree of autonomy from EU political institu-
tions that EU-level non-majoritarian agencies enjoy as a matter of fact as
opposed to law. It emerges from a rather extensive series of interviews with
high-level practitioners that such agencies are often controlled on an ongoing
basis by their EU political principal, either the Commission or the Council of
Ministers. Before evaluating agency accountability and identifying deficits, it
has to be ascertained a priori whether agencies and perhaps other actors really
benefit from all the discretion and independence they are formally said to
possess.61
There is a need for more empirical work taking specific actors and
networks at the European and global levels as the focus of study and explor-
ing the nature of accountability practices with regard to various accountability
forums (for instance, the evolving roles in practice of the European
Parliament, European Court of Justice, Court of Auditors, European
Ombudsman and so on). For example, actors such as the European-level
network of financial regulators, with European tasks, known by the acronym
CESR, may be studied. There is also a need for more conceptual (and empiri-
cal) work on the linkages between a concept of accountability as relatively
precisely defined and other general ‘themes’ of any political system. This can
include both meta-norms such as ‘democracy’, ‘representation’ and ‘legiti-
macy’ and more secondary norms of the type ‘organizing principles’ such as
‘transparency’, ‘administration’ and ‘civil society’. At the same time there is a
need to take the empirical work one step further by building on the insights
from the empirical research. What do we learn from the empirical work? How
can we contribute to/refine the existing theory? These are issues that need
much further thought and reflection and can be addressed not only in the
context of European private lawmaking but also more generally in that of
transnational governance.
5 CONCLUDING REMARKS
One possible analysis of shifts in governance to the transnational and
European arenas is certainly in terms of a democratic challenge at different
levels. If we take EU lawmaking as our example, the challenge is to democra-
tize first at the level of the EU political system itself; secondly, at the level of
the national political system; and thirdly, at the level of the often intricate
interactions between the two. This description already indicates that there is
unlikely to be a single solution for Europe’s democratic challenge at any level,
since national democracies are not only different but have been affected in
critically different ways by ongoing processes of European integration.
Accountability can in fact be construed as an important organizing principle of
democracy resting upon specific standardized procedures.62 Democratic
accountability is addressed as an element in accountability as a virtue, in terms
of stakeholder involvement, and as a mechanism, in the form of political
accountability. No wider claim is made that these practices of accountability,
in both senses, will solve legitimacy problems or give rise to appropriate
transnational democracy.
There is in addition to what has been discussed in this chapter a further
potential of international law norms to make a (limited) contribution to hold-
ing international actors to account.63 At the transnational level the emerging
(administrative) principles in the Global Administrative Law literature64 may
be a helpful perspective on an emerging culture of administrative law within
global regulatory governance, despite some of the caveats that have been
expressed in the literature.65 Some principles (such as transparency, participa-
tion) have been identified as part of a growing body of global administrative
law based on patterns of commonality in its function as a mechanism of
constraint and control.
If the EU did not exist then many of the issues currently dealt with by the
EU would not simply revert to the national (democratic) level, but would be
dealt with through other instruments of international cooperation (bilateral or
multilateral treaties, policy networks, and so on) with an aggravation of the
same phenomenon: overweening executive power and little if any counter-
vailing power.66 At the level of the EU political system we find the same
phenomena that we find at the more global level: policy based networks,
involvement by private actors and the scientific community, soft instruments
of governance and a lack of clarity as to lines of responsibility and account-
ability. Moreover it is precisely in this context that several innovative arrange-
ments are emerging/taking shape that could function as inspiration in other
contexts.
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Public accountability of transnational rule making 53
1 INTRODUCTION
In multi-level systems of territorial jurisdictions, regulations may be enacted
at either a higher (centralized) or a lower (decentralized) level of government.
A prime example is the European Union (EU): a particular competence may
be allocated to one of four different levels: the European Union, the Member
States, the regions within the Member States and provinces or municipalities.
The World Trade Organization (WTO) adds an additional layer of governance
to this already complex vertical division of regulatory powers by creating
scope for decision making at the world-wide level.
This state of things poses difficult questions as to the optimal level of
government. Should competences to enact regulations be exercised at the
central level (European Union, World Trade Organization) or should such
competences be decentralized and exercised by nation states or by regulatory
agencies at lower levels of government within those states? Even though law
was originally the exclusive domain of nation states, the ambitious internal
market programme of the European Community (EC) has led to a substantial
reshuffling of regulatory competences. Since the achievement of the internal
market is often considered an exclusive competence of the EC, Member States
have lost large parts of their regulatory autonomy in areas of law affecting the
four fundamental economic freedoms. Even though the World Trade
Organization does not enjoy similar regulatory powers – since there is no
direct equivalent to the four economic freedoms and institutions enforcing
those freedoms comparable to the European Court of Justice (ECJ) are lack-
ing – the regulatory autonomy of states may be restricted by way of multilat-
eral agreements to ensure free trade, protect health and safety and the
environment, avoid competitive distortions through taxes and subsidies,
protect intellectual property, and so on.
57
58 Globalization and private law
2 HETEROGENEITY OF PREFERENCES
A useful starting point for an economic analysis of decentralization is
Tiebout’s seminal article on the optimal provision of local public goods.4
Congestible public goods, which are consumed and financed in common, do
not allow people with a variety of tastes to live side by side without difficulty.
People can be better off if they cluster together in communities with others
who have similar tastes. For example, people who like to play sports may
move to communities offering publicly financed sports facilities, such as
swimming pools and tennis courts. Other people who prefer to read books may
move to communities with well-equipped libraries. If people can freely move,
they can ‘vote with their feet’ and move to the community offering their
preferred bundle of public goods.
Legal rules also have characteristics of public goods: they are both non-
rivalrous and non-excludable. The possibility to claim damages for a particu-
lar victim of a tortfeasor does not hinder other victims from equally obtaining
compensation (absence of rivalry); people who do not pay taxes also profit
from rules on traffic safety (no possibility to exclude free-riders). Hence,
Tiebout’s theory may be extended to competition between legal rules.
Competing jurisdictions will offer an optimal package of public goods if
people can vote with their feet. Theory tells us that if competition between
sellers of products may lead to allocative efficiency, the same beneficial
results may be reached when legislators compete as suppliers of legal rules.
Decentralization enables legislators to choose those rules which best serve the
goals preferred by the local population. Firms and individuals may vote with
their feet and choose the jurisdiction which in their view offers the best set of
laws. Such ‘exit’ decisions, together with the power to vote (‘voice’), may
ensure that firms and citizens are offered their preferred set of legal rules. It
must be emphasized that voting with their feet does not require that people
move physically. A free choice of law rule, which enables firms and individu-
als to choose which law will apply to their transactions, will create the largest
possible scope for regulatory competition. The best-known example is the
freedom for companies to choose the corporate law governing their business,5
but free choice of law may equally apply to business contracts and consumer
sales.
As is the case with all economic models, Tiebout’s theory is valid only if a
number of restrictive assumptions are satisfied:
realistic for firms, which can hire experienced lawyers to assist them in
shopping for the best legal regime.
• There must be no interstate externalities, no scale economies or oppor-
tunistic behaviour of legislators. These requirements will be discussed
in more detail below (Sections 4 to 6), and it will then become clear that
these are the main arguments in favour of centralized decision making
and some form of harmonization of laws.
Even though the conditions of the model are not easily satisfied in practice,
Tiebout’s theory remains important since it illuminates the economic reasons
which may justify decentralization. At the normative level, the Tiebout model
leads to the important insight that diverging legal rules or competition between
legal orders enables satisfaction of more preferences. This benefit is particu-
larly important in fields of law where preferences are not homogeneous.
Environmental law is an obvious example. In a first-best world environmental
standards are decentralized: they are adapted to varying preferences and take
regional diversity into account. Some jurisdictions may wish to relax their
environmental standards in order to provide attractive jobs for their residents.
Costs and benefits do also differ across geographic regions and this regional
diversity should be taken into account in an optimally specified environmen-
tal law.6
Building upon Tiebout’s classic article, a case can be made also for diver-
gent company laws and varying rules of competition law. Corporate law is
largely shaped by the wish to protect investors from managerial shirking.
However, the desire to protect not only shareholders but also other stakehold-
ers (in particular employees) may inspire diverging management structures, as
a comparison of UK and German corporate law may show.7 In the discussion
about the goals of competition law, allocative efficiency is not generally
accepted as the sole objective.8 In contrast with the United States of America,
pluralist views predominate in the European Union. Rather than emphasizing
efficiency goals, the competition law of the EC Member States may reflect
different concerns, such as the protection of freedom of competition as such.
There is no economic reason why competition laws should not reflect differ-
ent views in different countries as long as both costs and benefits remain in the
jurisdiction that enacted the rules. The recent transplantation of many EC
competition rules into the national legal orders of some Member States
restricts the choice between competition laws.
4 INTERSTATE EXTERNALITIES
Externalities between jurisdictions are a powerful argument in favour of
centralized rule making. If nation states enact legal rules that are likely to
cause negative externalities for other states, centralization may be needed to
guarantee that the externalities are ‘internalized’. The externality problem
arises in many fields: air pollution is an obvious example. Another example is
the negative effects of a merger on prices in different countries; to internalize
these negative consequences control by a central antitrust agency may be
required. If allocative efficiency is to be reached in a federal state, preferences
for inefficient national rules in any field of law may be satisfied only to the
extent that costs are borne by the population preferring such rules. Conversely,
centralization may be required to internalize the negative effects thrown upon
other jurisdictions.
In diverging policy fields, national laws may cause adverse externalities for
other states. However, before jumping to the conclusion that centralization is
warranted, it should be investigated whether bilateral (or multilateral) agree-
ments between the states concerned are not superior solutions. In the Law and
14 Named after Nobel Prize Winner Prof. R.H. Coase, who is generally consid-
ered a founding father of New Law and Economics, in which economic insights are
used outside the field of antitrust, such as private law. The Coase theorem was devel-
oped in Coase (1960, p. 1).
15 Guzman (2008).
16 Guzman, op.cit., p. 175.
17 See Van den Bergh (2000, p. 80).
Choosing the optimal regulatory level 65
18 Member States may not agree to a cooperative outcome, in order to signal that
they are ‘tough negotiators’, and thus want to protect their bargaining power in future
negotiations.
19 On the decision-making processes in the WTO, see Wouters and De Meester
(2007, p. 127).
20 Oates (1972) and Inman and Rubinfeld (1997, pp. 43–64).
21 Guzman, op.cit., p. 170.
22 Depoorter (2000, p. 498).
66 Globalization and private law
ble at first sight, a more detailed analysis will show that the transaction cost
savings resulting from legal certainty are less obvious than is regularly
assumed.
It is doubtful that uniform laws automatically reduce uncertainty. To start
with, within the European Union problems already emerge when the ‘uniform’
rules have to be translated into the different languages of the EU Member
States. Language differences resulting from translations can lead to different
interpretations of the same provision.
Even if interpretation problems can be avoided through adequate transla-
tions, legal certainty will not automatically be achieved. Common uniform
rules only increase legal certainty when a uniform interpretation of the law in
each EU Member State is secured. Unlike goods, legal rules cannot easily be
transported from one state to another. It does not suffice that the legal systems
of the EU Member States use the same wording. This wording must also be
understood as having the same content in the different legal systems. Legrand
emphasizes that there could only occur a meaningful legal transplant when
both the propositional statement as such and its invested meaning – which
jointly constitute the rule – are transposed from one state to another. ‘Legal
transplants’ sensu stricto may be simply impossible.23 The sharp criticisms by
Legrand make clear that the achievement of legal certainty requires not only
uniformity of legal rules but equally harmonization of case law. The European
Court of Justice may be asked to provide a uniform interpretation of legal
concepts that are included in Regulations and Directives. At the international
level, there is not another court that has the power to guarantee uniform inter-
pretation of legal concepts. Given the differences in interpretation that cannot
be overcome, legal certainty at the global level will thus remain a myth.24
It must be added that the implementation of harmonization measures
creates costs of its own, which may (partially) outweigh the savings in terms
of legal certainty. The costs of modifying national rules may be very high if
the new rules apply also to purely domestic transactions. In the latter case,
harmonization causes disharmonies within national legal systems by creating
islands of unitary laws that disrupt the internal consistency of national legal
systems.
6 REGULATORY COMPETITION
The choice between centralization and decentralization has an impact on the
degree of legal uniformity and the scope for competition between legal rules.
Centralization may imply uniformity and little scope for diverging legal rules.
By contrast, decentralization may enable competition between legislators and
different solutions for legal problems. Diverging rules are often criticized
because they would cause distortions of competition in cross-border trade.
When the European Commission proposes harmonization of laws, it usually
refers to the need to prevent inequality of competitive conditions across the
EC Member States. It is regularly argued that differences in regulation cause
distortions of competition, and that harmonization measures are needed to
create a ‘level playing field’ for industries that are active in cross-border trade.
If legal rules differ, so it is argued, firms operating in Member States that have
chosen in favour of regulatory laxness would have a competitive advantage
over firms in other Member States that have adopted stricter rules.
Competitive distortions of this kind would be incompatible with the goal of
market integration. Also at the global level, uniformity may be seen as an
instrument to equalize competitive conditions in world markets so that firms
from different countries may compete on an equal footing. In sum, the need to
create a ‘level playing field’ is often advanced as an argument against regula-
tory competition.
There are several problems with the above line of argumentation. First, the
level playing field argument is based on a reasoning that goes against the very
essence of international trade itself. Second, the argument may be easily
abused by policy makers who favour far-reaching centralization. In the
European context, this may cause a ‘race to Brussels’. Such strong centralist
tendencies endanger both the existence of a multi-level regulatory system and
its beneficial competitive elements. These criticisms do not imply that regula-
tory competition is always to be judged positively. An assessment of regula-
tory competition requires two steps: (i) an analysis of the particular type of
regulatory competition that may develop given the degree of (de)centralization
and the applicable conflict-of-law rules within a multi-level regulatory system,
and (ii) an analysis of the welfare effects of this competition. The last part of
this assessment may show a risk of a ‘race to the bottom’. Only if this risk
materialized would regulatory competition lead to ‘bad’ law, and centraliza-
tion, in particular measures of (minimum) harmonization, would be needed to
protect the quality of the law. Below, these arguments are further elaborated
upon. First, the ‘level playing field’ argument is criticized. Second, a distinc-
tion is introduced between different types of regulatory competition. Third, the
risk of a ‘race to the bottom’ is critically assessed.
29 Porter (1990).
30 Ogus (1999, p. 417).
72 Globalization and private law
31 Heine and Kerber (2002) op.cit.; Kerber and Budzinski (2003, p. 411).
Choosing the optimal regulatory level 73
The expansion of the principle of mutual recognition has not yet reached its
limits, since it may be seen also as an appropriate institutional device to break
down non-tariff barriers to trade in the international context and promote a
world-wide integration of markets. In this context, it should be noted that the
EU principle of mutual recognition may itself conflict with the non-discrimi-
nation rules of the WTO since it applies only to products imported from other
EU Member States and not to products manufactured according to the regula-
tions of a third country. Redesigning mutual recognition as an open system
applying at the world-wide level would overcome this problem. According to
Weiler, ‘it will not be long before a WTO Panel and/or the Appellate Body will
pronounce a WTO version of the Doctrine of Parallel Functionalism (or
mutual recognition)’.35
Several authors have welcomed the principle of mutual recognition as an
instrument for enabling regulatory competition (allowing states to pursue their
own economic and social policy) and impeding the centralization of regulatory
powers.36 In recent papers, Kerber and Van den Bergh argue that mutual
recognition is neither an appropriate rule for enabling a sustainable process of
regulatory competition nor an effective device for preventing centralization
and harmonization.37 In their view, the principle of mutual recognition suffers
from several inconsistencies and therefore does not ensure a stable allocation
of regulatory powers in a multi-level system of rule making.
First, the principle of mutual recognition rule established by the ECJ is a
conditional rule: it applies only if the objectives or effects of diverging
national regulations are equivalent. This conditional rule reduces the scope for
a meaningful form of regulatory competition. In practice, EC Member States
must submit all envisaged new technical rules to a special committee. This
may have the effect that the rules are adapted before they become part of
national legislation, so that the final outcome closely resembles harmoniza-
tion. Also, the Cassis de Dijon ruling allows that market integration concerns
may be given less weight than the protection of the general good in the host
state.38 This possibility to justify national rules on the basis of ‘mandatory
requirements’ of general interest does not create a stable solution and will initi-
ate a dynamic process of re-allocating regulatory powers.
Second, the scope for regulatory competition that may emerge under a
regime of mutual recognition is very limited, since only buyers of the import
state and not sellers may choose between different regulations. For example,
German consumers may prefer goods produced in conformity with Italian
rules but German firms are not free to adapt their production according to
Italian law. Mutual recognition does not help to preserve decentralized regula-
tory powers, because the states lose the regulatory autonomy over their domes-
tic markets and retain regulatory power only over domestic firms. In this way,
existing regulations for domestic markets are transformed into hardly defensi-
ble regulations for domestic producers. Complaints about ‘reverse discrimina-
tion’ may lead to problematic industrial policy efforts for improving the
international competitiveness of domestic firms.
Third, the deficiencies described above cannot be overcome by making
mutual recognition an unconditional rule that would also offer a stable solu-
tion. The reason is that such rule may cause a race to the bottom. If this risk
materializes, mutual recognition tends to be an inferior rule compared with
(minimum) harmonization or the country of destination principle. In the oppo-
site case, a free choice of law rule, which creates a free market for regulations
and the highest possible degree of regulatory competition, will be superior to
mutual recognition.
In sum, the rule of mutual recognition does not seem to be a stable conflict-
of-law rule in a two-level system of regulations. Its inconsistencies and prob-
lems suggest that it will initiate a process leading to (de facto) harmonization,
back to the country of destination principle, or to a free choice of law rule.
6.3 Race to the Bottom or Race to the Top: Theoretical Work and
Empirical Evidence
The risk of race to the bottom may be rephrased in economic terms as the
danger of prisoners’ dilemmas.39 If states inform each other on the content of
their regulatory policies, they may try to find solutions that maximize their
joint welfare. For example, they may jointly decide on taking steps to protect
air quality and share the costs of the necessary regulatory measures. However,
if states do not communicate with each other and are trapped in a prisoners’
dilemma game, regulatory laxness may occur when rules have to be enacted
and implemented. A state may wish to attract polluting business knowing that
it will gain a competitive advantage, provided that other states do not act in the
same way. However, if all other states anticipate such action and act similarly,
only the businesses will gain. The result of this prisoners’ dilemma is a ‘race
to the bottom’. Game theory suggests that prisoners’ dilemmas may be over-
come through communication. By taking decisions jointly at the central level,
states may be able to prevent regulatory laxness and make sure that welfare
enhancing measures are taken and implemented.
There is a very large theoretical economic literature that examines whether
competition between regulators may cause a ‘race to the bottom’. The
outcomes of these theoretical studies are highly dependent on the assumptions
used in the underlying theoretical models. Under certain assumptions a ‘race
to the top’ may ensue. Taking environmental law as an example, there is no
unambiguous support in the theoretical literature for the claim that there will
be a ‘race to the bottom’ over environmental standards. Game theoretic analy-
ses show that interstate competition may produce either suboptimal lax or
suboptimal stringent environmental regulations.40 Given that economic theory
is not conclusive, scepticism about ‘race to the bottom’ claims is further
warranted as long as there is no (or very little) empirical evidence supporting
such claims. The ‘race to the bottom’ story is based upon the belief that states
may wish to attract industry by lowering their environmental standards.
However, it seems unlikely that firms will relocate existing plant and incur the
costs of acquiring a new site, building a new facility and recruiting and train-
ing new workers to save pollution control costs that amount to only a small
percentage of the total value of sales.
Results from US studies indicate that there is little direct evidence of a rela-
tionship between the stringency of environmental regulations and plant loca-
tion decisions.41 Also, research by Holzinger and Sommerer covering 19
European Member States (as well as the USA, Mexico and Japan) has not
found a single case to support the risk of a ‘race to the bottom’ in environ-
mental law. On the contrary, a general tendency towards upgrading the envi-
ronmental standards has been observed.42 Holzinger and Sommerer show that,
theoretically, a ‘race to the bottom’ may develop in the case of free trade and
unconditional mutual recognition of product standards and product processes.
Conversely, a ‘race to the top’ may develop if symmetric firms (who have the
same cost conditions and the same market share) are hindered by trade restric-
tions. Since neither of these scenarios is sufficiently realistic in the European
Union (mutual recognition does not apply unconditionally and firms are
seldom symmetric), in practice there may be no race at all and an upgrading
of environmental standards may be better explained by harmonization
measures decided at the central level.
The conclusion seems to be that the scope for regulatory competition in
environmental law is limited and that its outcomes are uncertain. Observed
processes to upgrade environmental standards are not necessarily an outcome
of regulatory competition but may be simply the consequence of harmoniza-
tion measures favoured by politically powerful groups. This leads us to the
important insight that an analysis of (de)centralization has to take account of
potential political distortions, which will be briefly discussed in the next
section.
48 Niskanen (1971).
49 Ogus (1994, p. 96).
50 Dunleavy (1991).
80 Globalization and private law
against the will of an individual state, there is no reason to assume that the
central law-maker will enact efficient rules. A critical look at EC Directives
immediately shows that several rules of consumer protection may cause inef-
ficiencies rather than curing them. EC Directives often exhibit a lack of under-
standing of the basic economic insights and thus fall a long way short of
providing an effective and efficient response to market failures in consumer
markets.51 Second, the Public Choice reasoning applies only if there are
lawmaking powers at the central level that supersede (the absence of) national
legislation, such as in the case of the European Community. By contrast, the
argument is not relevant at the global level if states have to consent to any
obligation that is imposed upon their citizens and firms.
52 The economic theory underlying this important insight is the Tiebout model
on optimal provision of public goods (Tiebout op.cit.). See also the literature on
economic federalism, Oates (1999, p. 1120).
53 See Faure (2000, pp. 467–508).
82 Globalization and private law
54 The danger that all Member States laws provide for lax rules, which would
cause a ‘race to the bottom’, is discussed below.
55 Directive 85/374, OJ, 1985, L210/29.
56 Faure (2000, p. 467).
57 Van den Bergh (1998, pp. 140–45).
Choosing the optimal regulatory level 83
In line with the above analysis (see Section 6) two questions should be asked: (i)
May regulatory competition develop in fields of private law? (ii) Is there a risk
that such competition may cause a race to the bottom? Theoretically, private law
could be fully decentralized and free choice of law could allow competition
amongst a large set of diverging rules. In practice, there is a growing tendency
to decide contents of rules of private law at a central level and competition is
limited by harmonization measures and excluding free choice of law. The
European Union has started a very ambitious programme of full harmonization
of rules protecting consumers that limit the possibility of Member States to
freely decide the contents of contract law.59 Freedom of choice for consumers is
excluded by Article 5 of the Rome Convention, which stipulates the binding rule
that cross-border transactions are governed by the law of the country where the
consumer resides.60 There is no comparably ambitious centralization plan in the
area of tort law, so that the scope for regulatory competition is larger and a risk
of a race to the bottom cannot totally be excluded.
As the existing harmonization measures still leave scope for regulatory
competition, the risk of a race to the bottom scenario on the markets for private
law in Europe does not seem high. Theoretically, the risk of a race to the
bottom in consumer law has been shown by Sinn, who argues that the market
failures addressed by consumer law will re-emerge if competition between
consumer protection rules is made possible.61 This reasoning requires infor-
mation asymmetries on markets for legislation that may be less severe than
information asymmetries in ordinary markets.62 Moreover, in the real world
consumers are protected by the rules of their home state. To attract industry by
means of ‘bad’ consumer law would thus imply that a national legislator
decides to make its own consumers worse off. The presence of politically
powerful consumer groups may make this choice unlikely. It seems equally
implausible that firms will relocate plants to profit from lenient rules of
consumer contract law. Other factors, such as the tax rate, the availability of
public services and the unionization of labour forces, may be far more impor-
tant decision criteria in location decisions of businesses. Finally, if rules of
contract law are efficiency motivated they will increase and not decrease the
competitiveness of firms. States may thus also have incentives to engage in a
‘race to the top’.63
In the field of tort law, the limited reach of the harmonization measures
leaves more scope for regulatory competition. For example, the EC Product
Liability Directive leaves freedom to the Member States to decide whether
product manufacturers may limit their liability by profiting from a develop-
ment risk defence. It has been argued that the optional nature of the develop-
ment risk defence may distort business decisions as to where to locate and that
businesses may have a preference to ‘test’ products in states that maintain the
defence.64 This example shows that the Directive is not an effective instrument
to curtail a ‘race to the bottom’ if such scenario materializes. However, the fear
of a risk of a race to the bottom may be misplaced. Not only is there no hard
empirical evidence that supports the decision to (re)locate. Even more impor-
tantly, testing products in host states may increase global welfare by over-
coming the negative impact of the exclusion of the development risk defence
in home states. In spite of its potential disadvantages, legal diversity with
respect to the admissibility of the development risk defence may protect incen-
tives to innovate and thus preserve important learning processes in the
market.65
The above analysis assumed that the possibility of a race to the bottom is
low since states can only acquire benefits in the case of physical migration of
firms. In the area of contract law and tort law, this is a realistic assumption in
as far as states cannot charge foreign firms for using their legal system. The
discussion on regulatory competition in the field of corporate law shows that
regulatory competition becomes intense if states are able to charge fees for
making use of their company law. Romano reports that 16 per cent of the total
tax revenue of Delaware is derived from incorporation fees.66 However, it
seems less feasible to charge fees for using contract or tort doctrines developed
in a single jurisdiction. In sum, the risk of a race to the bottom is no convinc-
ing argument to justify centralization and harmonization of laws.
In the previous sections it was shown that neither the interstate externalities
argument nor the risk of a race to the bottom justifies far-reaching centraliza-
tion of private law. This leads to the question of whether cost savings may
justify the enactment of rules of private law at central levels of government.
Besides the level playing field argument, unification and harmonization are
usually defended because of the cost savings they may generate and the
increase in international trade that may ensue as a beneficial consequence of
these cost reductions. Before investigating the merits of the cost savings argu-
ment for unification or harmonization of private law, it is pertinent to recall
that an exclusive focus on potential benefits in international trade neglects the
possible disadvantages of centralization plans. Below, the relevance of the cost
savings argument and its linkage to benefits of increased international trade is
further analysed. The potential costs of centralization are discussed in Section
8.4.
It may be recalled from the analysis in Section 5 that cost savings may take
two forms: scale economies and transaction cost savings. Scale economies
may be important if information must be collected about costs and benefits of
alternative rules: for example, to enact efficient safety standards. However,
such scale economies seem to be of less importance in the field of private law.
They are absent when facilitative rules (enabling formation and execution of
contracts) must be formulated. In the case of regulatory rules (such as
consumer protection regulation) centralization may generate economies in
information production. However, these cost savings may be outweighed by
the loss of information about the effects of alternative rules generated by regu-
latory competition.
Transaction cost savings result from greater legal certainty in the case of
uniform or harmonized rules of private law. As discussed above, in interna-
tional trade legal certainty may remain an illusion as long as there is no
uniformity in the way legal rules are interpreted. Whereas the European
Court of Justice may contribute to the achievement of transaction cost
savings through its preliminary rulings, there is no comparable court which
could provide legal certainty at the global level. Private ordering mecha-
nisms may fill this gap. In international trade, standardized contracts (lex
mercatoria) and reputation building may be more powerful tools to cope
with uncertainty on legal rules than harmonization measures decided by a
central public regulator. Finally, even if public ordering mechanisms
succeed in creating more legal certainty it remains doubtful that cross-border
trade will increase after harmonization of laws. As discussed above, hard
evidence on increased trade as a result of harmonization of laws is lacking
and the real impact of diverging legal rules on trade flows across countries
remains largely unknown.
Given the large ambiguities that characterize the cost savings argument, it
will be clear that centralization of private law at the global level cannot easily
be justified by increases in international trade that are the consequence of
greater legal uniformity. Hence, there is a risk that the cost savings argument
is abused in the policy discussions to justify centralization. This risk may be
contained by making use of distinctions that properly account for the differ-
ences relating to both the size of the transaction cost savings and their impact
on trade flows across countries. In its present form, the market integration
Choosing the optimal regulatory level 87
argument is far too general; it lacks distinctive power67 and owes its strength
more to the fact that it is constantly repeated than to convincing analysis. The
quality of the policy discussion will be improved by distinguishing areas
where transactions may be impeded by differences in legal rules and areas
where such problems can be overcome easily. Both the qualifications of the
trading partners and the size of the risk factor in international trade transac-
tions may be helpful criteria to downsize the cost savings argument to its right
proportions.
The ‘barriers to trade’ argument seems less powerful in business-to-busi-
ness (B2B) relations than in business-to-consumer (B2C) relations. The
reasons are threefold. First, firms can hire experienced lawyers and may more
easily inform themselves about differences in legal rules than individual
consumers are able to do. Second, firms may resort to private ordering mech-
anisms that circumvent the problems resulting from diverging legal rules.
Even under legal uncertainty firms may develop joint welfare maximization
strategies if they are involved in repeated transactions, recognize opportunis-
tic behaviour and can impose sanctions on non-cooperative behaviour. By
building long-term relationships (relational contracts) and resorting to trade
intermediaries, firms will become repeat players. Firms may also be able to
assess whether a contract party behaves cooperatively by limiting the transac-
tions to narrowly defined groups. The membership of such groups may then
signal that a trading party kept his promises in the past and is likely to behave
also cooperatively in the future to avoid tough sanctions, such as exclusion.
Cooperative behaviour may be stimulated further by specific investments68 or
securities, such as a bank warranties.69 Third, firms may establish autonomous
private rules and achieve cost savings through standardization of their
contracts. In sum, firms active in international trade have different possibili-
ties to overcome problems caused by legal diversity and, therefore, the nega-
tive impact of legal uncertainty on the volume of international trade may be
limited.
The picture is different in business-to-consumer contracts. First, consumers
face greater difficulties when they want to inform themselves about differ-
ences in legal rules. Second, reputation mechanisms do not work in the same
way as in B2B contracts. Third, there is no equivalent of a lex mercatoria for
international transactions between businesses and consumers. It should be
added that reputation building may develop on the internet (for example,
through online reputation channels, such as www.tripadvisor.com) and that
70 Rühl, op.cit.
71 Wagner, op.cit. (pp. 1016–17).
72 Schaefer (2008).
73 Directive 85/577, OJ 1985 L372/31.
74 See also the criticisms by Weatherill, op.cit.
75 Directive 94/47, OJ 1994 L280/83.
76 Directive 87/102, OJ 1987 L42/48; Directive 2002/65 OJ 2002 L271/16. For
a discussion, see Weatherill, op.cit. (p. 86).
Choosing the optimal regulatory level 89
will generally agree that competition for the best legal solution has been
occurring in Europe. Rules of contract law have been converging towards the
most efficient solution, thanks to ‘yardstick competition’ initiated by the writ-
ings of legal scholars who were impressed by the blessings of a foreign legal
rule.82 Also, the evolution of the consumer laws of EC Member States offers
different examples illustrating the potential scope of the learning processes.
Examples include the sanction for sending unsolicited products to consumers,
the regulation of cooling-off periods and the way to judge deception in adver-
tising cases.83 The counterargument that experimentation will lead to an
unmanageable amount of diverging rules and an intolerable level of legal
uncertainty can be easily rebutted. Mutual learning processes may alleviate the
convergence of legal rules and amount to an ex post or market-based harmo-
nization of laws. Hence, competition between legislators in the EC does not
necessarily imply that rules will greatly differ. Whereas unification and
harmonization by means of central rules (Regulations and Directives) implies
forced coordination of legislative provisions in the Member States, dynamic
competitive processes may produce voluntary harmonization. The result of the
process of innovation and subsequent amendment may be a substantial unifor-
mity across the EC Member States.
Third, information advantages at lower levels of government plead in
favour of decentralization. Problems of information asymmetries in consumer
markets require solutions that are optimally adapted to local market condi-
tions. For example, consumers living in countries with less developed market
economies (which previously had a state planned economy) may be more
vulnerable to certain types of unfair trade practices, such as pyramid promo-
tional schemes. The different degrees of evolution of the market economy
should be reflected in different levels of mandatory information duties and
concomitant sanctions. Also, the regulator who is closest to the consumers in
question is best placed to enact the necessary information regulation. A central
regulator would face an almost impossible task in identifying the information
that must be conveyed and the way in which it must be communicated in order
to allow consumers to make an informed choice, thereby fully taking account
of their divergent expectations as to the variety and quality of products offered.
Fourth, decentralization enables regulatory competition and a ‘race to the
top’. The most intense form of regulatory competition occurs under a regime
of free choice of law. Under this option, a market for consumer protection
rules emerges in which states offer national regulations as certifications to all
firms that are active in the market. The firms can choose freely between them
and export their products and services if they are in conformity with one of the
national regulations. The decisive question is whether the consumers are capa-
ble of assessing the quality of the consumer protection rules. In this respect, it
should be taken into account that both the reputation mechanism and informa-
tion intermediaries, who have special knowledge and are able to monitor the
quality of these regulations, can help the consumers in their assessment of
diverging national regulations. If the information problem is solved, the most
important disadvantage of the free choice of law solution is eliminated. Other
disadvantages, such as higher costs through the parallel existence of several
regulations, are relatively small in comparison with the potentially great
advantages.
9 CONCLUSIONS
In a globalized world, difficult questions arise as to the optimal level of
lawmaking in multi-level territorial jurisdictions. The sovereignty of tradi-
tional nation states is challenged since it is by no means evident that the
balancing of costs and benefits at lower levels of decision making corresponds
with goals of welfare maximization at higher levels of government. In the
European Union, the goal of market integration is advanced by measures of
unification and harmonization of laws. It is regularly argued that differences
in legal rules make it difficult for firms to expand their operations beyond
national borders and that this divergence creates distortions of competition,
which are at odds with the need for a ‘level playing field’ for industry.
Moreover, consumers will be deterred from cross-border shopping since they
do not enjoy the same legal protection across the different EU Member States.
Under the consumer protection flag, a broad set of rules has meanwhile been
enacted that affect legal doctrines of national contract law and form the basis
of the new discipline of ‘European contract law’. Since, at the global level,
there are no institutions that enjoy similar regulatory and judicial powers the
impact of world trade law on the private law of nation states has remained
minor. However, there is a risk that the European model may inspire future
developments within the World Trade Organization and that limited or indirect
forms of harmonization of private law (for example, through a variant of the
principle of mutual recognition) may be considered necessary to achieve an
integrated global economic market. Hence, the time seems ripe for a critical
assessment of the free trade argument as a basis for justification of uniform or
harmonized rules of private law.
At first blush, the market integration argument seems plausible: legal
uncertainty and transaction costs increase with an expanding number of
diverging legal rules. However, a closer analysis shows that the argument,
92 Globalization and private law
ization become the more powerful the larger is the number of nations
involved: more diverging preferences, more information benefits at decentral-
ized decision levels, more scope for innovation, and an increased risk of regu-
latory capture at the central level. As long as the WTO does not enjoy similar
regulatory powers a ‘world consumer law’ still seems very far away. However,
it may take less time for the WTO to adopt some form of mutual recognition
principle and this may become the Trojan horse in a diversified global legal
order. The European experience shows that mutual recognition, far from
allowing regulatory competition and protecting against far-reaching central-
ization, has become an alternative pathway to achieve harmonization.
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4. Globalization and harmonization of
international trade law
Sieg Eiselen
1 INTRODUCTION
The phenomenon of globalization is speeding up in the current century.
Although there is as yet no clear and generally accepted definition of what
exactly globalization means and includes, there are a number of core charac-
teristics which can be used to describe the phenomenon in international trade.1
Globalization is characterized by the increasing way in which international
borders are becoming irrelevant, especially in respect of international trade,
due to the modern forms of transport, modern forms of communication
(specifically the internet) and the use of English as the common trade
language. It is a process driven mostly by economic and technological forces,
irrespective of any legal barriers that may exist.2
The way in which international markets have become integrated and mutu-
ally dependent in the last century and a half was dramatically demonstrated
first by the worldwide recession, caused by the protectionist trade measures of
the United States and the ensuing tariff war, during the early part of the twen-
tieth century,3 and more recently by the Asian financial crisis in 1997, which
caused not only severe economic turbulence in South-East Asia but a world-
wide economic slowdown,4 and the worldwide tremors sent through interna-
tional markets originating in the ongoing American sub-prime crisis and
recession of 2008.
The tardiness of the law to respond to the challenges posed by globaliza-
tion, by the needs of international trade and by the impact of information tech-
nology and the internet is mentioned quite often as one of the major stumbling
blocks in the path of greater globalization and international trade.5 The process
1 Backer (2007, p. xiii); Kenna (2008, p. 397) and Keenan (2008, pp. 342–3).
2 Dalhuisen (2000).
3 August (2004, pp. 353–4).
4 Karunatilleka (1999).
5 See for instance the General Assembly Resolution 35/51 at its 35th Plenary
97
98 Globalization and private law
like the Vienna Convention for the International Sale of Goods, 1980 (CISG),
are not the only available instruments of trade law harmonization, but that
there are also soft law options such as the Incoterms of the International
Chamber of Commerce (ICC) or the Unidroit Principles of International
Commercial Contracts of Unidroit that can play a significant role in this
process. The various agents of harmonization such as the United Nations
Commission for International Trade Law (UNCITRAL), Unidroit, the
International Chamber of Commerce (ICC) and the World Customs
Organization will also be considered. In the evaluation of the different agents
of harmonization and their instruments, attention will further be given to the
extent that these instruments may be regarded as reflecting democratic values
in their drafting processes and application.
Commune in Europe or the lex mercatoria of the Middle Ages.23 The early
attempts at harmonization or unification of international private law towards
the end of the nineteenth century (referring back to the lex mercatoria) were
far too ambitious in their scope.24 As a result these attempts had no immedi-
ate impact or success other than to raise awareness of the problems caused for
international trade by the rise of the modern state and its exclusive territorial
domestic laws. Even in states within close proximity to each other and with a
common legal heritage founded on classical Roman law like the European
states, a great deal of legal diversity developed quite quickly, with some states
basing their civil codes on the French model while others chose the German
example.25 Similarly, the contract codes and trade laws existing in the various
American states diversified over time, finally necessitating the drafting of the
Uniform Commercial Code (UCC), which has now been adopted in most
states, as a harmonizing instrument of trade law.26
On the international level, the first serious attempt at harmonizing aspects
of international trade law started with the founding of Unidroit as an auxiliary
organ by the League of Nations in 1926.27 Their first project started in 1929
under the leadership of Cecil Hurst and Ernst Rabel and consisted of the draft-
ing of an international sales code.28 A draft was finally presented by the draft-
ing committee in 1935, but the fate of that document was initially sealed by
the growing tensions in Europe and finally World War II.29 This draft was only
revived again in 1951 at an international conference in The Hague in the
Netherlands. A new commission was appointed to rework the original Rabel
draft and a draft text was presented to the Hague Conference in 1958.30
Further work led to two draft instruments, namely the Uniform Law of
International Sales (ULIS) and the Uniform Law on the Formation of
Contracts for the International Sale of Goods (ULF) under the auspices of the
23 For a discussion on the ancient and modern lex mercatoria see Michaels
(2007, pp. 447 ff.); Mendes (1988, pp. 109–44); Blasé (1999, p. 3); Mazzacano (2006).
24 Kötz (1986, pp. 1–2); Michaels (2007, p. 447); Oly (1982, pp. 29–33).
25 Zweigert and Kötz (1998, pp. 51 and 54–5).
26 For a history and justification of the UCC see Corbin (1950, pp. 821–36);
Braucher (1958, pp. 798–812); Kamp (1949, pp. 359–476).
27 For a brief history of Unidroit see http://www.unidroit.org/dynasite.
cfm?dsmid=84219, accessed 5 June 2009. Unidroit is still in existence today as an
organization founded by a multilateral convention, the Unidroit Statute of 1940.
28 Bianca and Bonell (1987, p. 3); Magnus (2005) Einl. zum CISG § 20;
Schlechtriem (2005, p. 1).
29 Bianca and Bonell (1987, pp. 3–4); Magnus (2005) Einl. zum CISG § 20.
30 Bianca and Bonell (1987, p. 4); Magnus (2005) Einl. zum CISG § 21;
Schlechtriem (2005, p. 1).
102 Globalization and private law
31 Bianca and Bonell (1987, p. 4); Magnus (2005) Einl. zum CISG § 22.
32 Bianca and Bonell (1987, pp. 4–5); Magnus (2005) Einl. zum CISG § 23;
Schlechtriem (2005, p. 1).
33 Honnold (1999, p. 4); Bianca and Bonell (1987, pp. 4–5). Ironically the
United Kingdom was one of the countries that acceded to the conventions, but it was
done in such a manner that they never became operative in that country. To date the
United Kingdom has also not acceded to the CISG, despite its participation in the draft-
ing process in UNCITRAL.
34 Honnold (1999, p. 9); Magnus (2005) Einl. zum CISG § 24.
35 Magnus (2005) Einl. zum CISG § 24.
36 Schlechtriem (2005, pp. 1–2).
37 Schlechtriem (2005, p. 2); Magnus (2005) Einl. zum CISG § 24.
38 Resolution 2205(XXI) of 17 December 1966.
39 Resolution 2205(XXI) of 17 December 1966. On UNCITRAL see generally
http://www.UNCITRAL.org, accessed 5 June 2009.
40 Magnus (2005) Einl. zum CISG § 24.
Harmonization of international trade law 103
41 Honnold (1999, pp. 8–10); Bianca and Bonell (1987, pp. 5–6).
42 Bianca and Bonell (1987, pp. 5–6); Magnus (2005) Einl. zum CISG § 26.
43 Magnus (2005) Einl. zum CISG § 27.
44 An up-to-date statement of the status of the CISG can be found at
http://www.UNCITRAL.org/UNCITRAL/en/UNCITRAL_texts/sale_goods/
1980CISG.html, accessed 5 June 2009.
45 There are indications that Brazil will soon adopt the CISG, following on the
recent accession by Japan.
46 Schlechtriem (2005, p. 1); Eiselen and Kritzer (2008, pp. 80–85) § 80:1;
Lookofsky (1993, p. 18); New Zealand Law Commission (1992, p. 10).
47 Holdsworth (2001); Eiselen and Kritzer (2008) § 84–49.
48 This is a trend that is apparent from for example an analysis of Chinese arbi-
tration cases where parties have been expressly opting into the CISG. See for instance
China 10 August 1999 CIETAC Arbitration proceeding (Raincoat case)
http://cisgw3.law.pace.edu/cases/990810c1.html, accessed 5 June 2009; China 26 June
2003 CIETAC Arbitration proceeding (Alumina case) http://cisgw3.law.pace.edu/
cases/030626c1.html, accessed 5 June 2009; China 18 December 2003 CIETAC
Arbitration proceeding (AOE and PECVD machines case) http://cisgw3.law.pace.edu/
cases/031218c1.html, accessed 5 June 2009; China 14 December 2004 Xiamen
Intermediate People’s Court [District Court] of Fujian Province (Xiamen Xiang Yu
Group Corporation v Mechel Trading AG) http://cisgw3.law.pace.edu/cases/
104 Globalization and private law
041214c1.html, accessed 5 June 2009; China 23 September 2005 New Pudong District
People’s Court [District Court] of Shanghai (Xi’an Yun Chang Trade Ltd. v An Tai
International (USA)) http://cisgw3.law.pace.edu/cases/050923c1.html, accessed 5 June
2009. See also the recommendation by Magnus (2005) Art 5 §§ 73–74.
49 Rosett (1984, p. 265); Rosett (1988, p. 587). Also see Kötz (1986, pp. 9–10);
Ferrari (1994, pp. 183 ff.); Kramer (1996, pp. 137 ff.).
50 Rosett (1984, p. 269). See also Van Alstine (1998, pp. 687–793); Andersen
(1998, pp. 403–10); Ferrari (1994, pp. 183–228); Ferrari (1999, pp. 245–61).
51 Ferrari (2001, pp. 225–39); Bazinas (2006, pp. 18–27).
52 Will (1995); Bonell (1995).
53 It was originally published as a hard copy loose-leaf publication but is
currently published on Unidroit’s website at http://www.unilex.info/dynasite.
cfm?dssid=2375&dsmid=14276, accessed 5 June 2009.
Harmonization of international trade law 105
almost 800 cases. The UNCITRAL website also contains a current list of cases
that is updated regularly. To date it contains more than 600 cases. In addition, it
contains a Case Digest that provides guidance through the large body of case
law.54
The most comprehensive and ambitious collection of case law is to be found
on the award-winning website of the Pace Law School’s Institute of
International Commercial Law.55 This website contains the full text of more than
2000 cases and arbitral awards from all parts of the world. It is easy to use and
accessible, with each case classified according to the CISG article to which it
relates. Most cases are also available in English, either as the original language
or in translation.56 This is the premier site for any researcher on the CISG,
because it also contains a comprehensive bibliography of literature on the CISG,
including more than 1200 texts available in full.57
In addition to these websites, there are several authoritative commentaries
available on the CISG. The one by Schlechtriem and Schwenzer58 is one of the
most comprehensive and best available in English, while the introduction by
Lookofsky59 provides an excellent introductory text for anyone new to this field.
The result has been that there is a wealth of accessible material, case law as
well as scholarly commentary, available on the interpretation and application of
the convention. Most of it is easily accessible on the Internet, and one would
expect practitioners and courts to rely on this material when dealing with the
CISG.
The fear that there would be widely disparate interpretations and applica-
tion of the CISG has therefore not proved to be a widespread problem.60
Although there were quite a few cases initially where the so-called homeward
trend in the interpretation of the CISG was apparent,61 this is also changing,
with courts worldwide using international case law and academic commentary
rather than relying on domestic solutions.62 By and large the uniform inter-
pretation and application of the CISG have been kept intact.
68 Goode (1993, pp. 6–9); Rosett (1992, pp. 683–97); Bonell (1994, pp. 1–6);
Bonell (1996, p. 29); David (1971, Ch. 5); Kötz (1986, pp. 1 ff.); Hobhouse (1990, p.
531); Mertens (1957, p. 657).
69 In public international law the term treaty or convention is used in the alter-
native to refer to ‘a written agreement between states or states and international orga-
nizations operating in the field of public international law’ – see Dugard (2000, p. 26).
The convention forming the modern basis for the law of treaties is curiously named the
Vienna Convention on the Law of Treaties, 1969.
70 Vienna Convention on the Law of Treaties 1969 Art 2; Dugard (2000, pp.
26–7).
108 Globalization and private law
71 Vienna Convention on the Law of Treaties 1969 Art 11; Dugard (2000, pp.
47–50; 54–8).
Harmonization of international trade law 109
harmony.72 This danger is somewhat countered by the fact that in the interpre-
tation of a convention courts and tribunals are entitled to take note of the legisla-
tive history of the convention and its provisions.73 The CISG, as is the case with
most subsequent UNCITRAL conventions, contains an article on interpretation
which is aimed at countering the homeward trend. Article 7 states:
Experience with the CISG has shown that there has been a homeward trend in
some decisions74 and a divergence in the results of the application of some of
the provisions. On the whole, however, the integrity and harmonization effect
of the CISG have been preserved.75 There is also a growing trend in courts
worldwide to refer not only to domestic decisions and writings but also to
international decisions and literature.76 The leading commentaries on the
On the domestic level the question of whether the instrument passes the test
of being democratic is more complicated. It depends firstly on the democratic
nature of the particular state itself. If it is a non-democratic state, ratification
of a convention can hardly be described as democratic. If a democratic state is
involved, the accession to the convention either by the executive or the legis-
lature can only be regarded as an indirect democratic process because the
convention is presented as a complete package, to be accepted or rejected as a
whole.
3.2.2 Soft law instruments – model laws or model codes open for
adoption by countries
A second type of instrument that has become more popular in the effort to
harmonize international commercial law is the model law or model code. The
object of such a model law or code is to indirectly harmonize the law in a
particular area by providing a standard text which can be adopted or modified
by individual countries as part of their domestic law. For instance, in the
Preamble to the 1985 UNCITRAL Model Law on International Commercial
Arbitration, the General Assembly states:
Convinced that the Model Law, together with the Convention on the Recognition
and Enforcement of Foreign Arbitral Awards and the Arbitration Rules of the United
Nations Commission on International Trade Law recommended by the General
Assembly in its resolution 31/98 of 15 December 1976, significantly contributes to
the establishment of a unified legal framework for the fair and efficient settlement
of disputes arising in international commercial relations, …
2. The Model Law constitutes a sound basis for the desired harmonization and
improvement of national laws. It covers all stages of the arbitral process from the
arbitration agreement to the recognition and enforcement of the arbitral award and
reflects a worldwide consensus on the principles and important issues of interna-
tional arbitration practice. It is acceptable to States of all regions and the different
legal or economic systems of the world. Since its adoption by UNCITRAL, the
Model Law has come to represent the accepted international legislative standard for
a modern arbitration law and a significant number of jurisdictions have enacted
arbitration legislation based on the Model Law.81
81 This assessment is substantiated by the fact that the Model Law has been used
by the following countries in enacting their arbitration laws: Armenia (2006), Australia
(1991), Austria (2005), Azerbaijan (1999), Bahrain (1994), Bangladesh (2001), Belarus
(1999), Bulgaria (2002), Cambodia (2006), Canada (1986), Chile (2004), in China:
Hong Kong Special Administrative Region (1996), Macau Special Administrative
Region (1998); Croatia (2001), Cyprus, Denmark (2005), Dominican Republic (2008),
112 Globalization and private law
Egypt (1996), Estonia (2006), Germany (1998), Greece (1999), Guatemala (1995),
Hungary (1994), India (1996), Iran (Islamic Republic of) (1997), Ireland (1998), Japan
(2003), Jordan (2001), Kenya (1995), Lithuania (1996), the former Yugoslav Republic
of Macedonia (2006), Madagascar (1998), Malta (1995), Mexico (1993), New Zealand
(1996), Nicaragua (2005), Nigeria (1990), Norway (2004), Oman (1997), Paraguay
(2002), Peru (1996), the Philippines (2004), Poland (2005), Republic of Korea (1999),
Russian Federation (1993), Serbia (2006), Singapore (2001), Spain (2003), Sri Lanka
(1995), Thailand (2002), Tunisia (1993), Turkey (2001), Ukraine (1994), within the
United Kingdom of Great Britain and Northern Ireland: Scotland (1990); in Bermuda,
overseas territory of the United Kingdom of Great Britain and Northern Ireland; within
the United States of America: California (1996), Connecticut (2000), Illinois (1998),
Louisiana, Oregon and Texas; Uganda (2000), Venezuela (1998), Zambia (2000) and
Zimbabwe (1996).
82 The South African Electronic Communications and Transactions Act Chapter
III and the Australian Electronic Transactions Act 162 of 1999 follow the Model Law
fairly closely. Nevertheless the Model Law has been followed quite closely in the legis-
lation based on it in 27 countries.
83 The legislation adopted in Canada and the United States differs quite
markedly from the Model Law and can only be said to have been influenced by it.
Harmonization of international trade law 113
3.3.1 UNCITRAL
UNCITRAL was established in 1966 by the General Assembly of the United
Nations with the express object of promoting international trade harmoniza-
tion.90 Resolution 2205 (XXI) of 17 December 1966, establishing UNCI-
TRAL, states in its Preamble:
88 August (2004, pp. 358–60). See also the website of the WTO at
http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm, accessed 5 June
2009.
89 The work of the World Customs Organization is included here because
customs valuation and duties form an integral part of the individual trade negotiations
and agreements. In that sense it is a commercially related matter, although strictly
speaking it falls within the scope of public law.
90 http://www.UNCITRAL.org/UNCITRAL/en/about/origin.html, accessed 5
June 2009.
Harmonization of international trade law 115
Noting at the same time that progress in this area has not been commensurate with
the importance and urgency of the problem, owing to a number of factors, in partic-
ular insufficient co-ordination and co-operation between the organizations
concerned, their limited membership or authority and the small degree of participa-
tion in this field on the part of many developing countries,
Considering it desirable that the process of harmonization and unification of the law
of international trade should be substantially co-ordinated, systematized, and accel-
erated and that a broader participation should be secured in furthering progress in
this area, …
Decides to establish a United Nations Commission on international trade law (here-
inafter referred to as the Commission), which shall have for its object the promo-
tion of the progressive harmonization and unification of the law of international
trade in accordance with the provisions set forth in section II below.
91 http://www.UNCITRAL.org/UNCITRAL/en/about/origin.html, accessed 5
June 2009.
92 http://www.UNCITRAL.org/UNCITRAL/en/about/methods.html, accessed 5
June 2009.
93 http://www.iccwbo.org/id93/index.html, accessed 5 June 2009.
94 http://www.UNCITRAL.org/UNCITRAL/en/about/methods.html, accessed 5
June 2009.
116 Globalization and private law
95 See Rubino-Samartano (2001, p. 139) and August (2004, p. 143) for a list of
some of these institutions.
96 D’Arcy et al. (2000, pp. 490–91).
97 34 parties.
98 The 1968 Hague-Visby Rules (Protocol of 23 February 1968) are a variant of
the original 1924 Hague Rules (International Convention for the Unification of Certain
Rules of Law Relating to Bills of Lading). They currently have more than 80 Member
States. See August (2004, pp. 617–18); Gillies and Möens (1998, p. 176).
99 More than 30 countries have used the Model Law in drafting their arbitration
laws. See Wolf (2004, pp. 243–4).
100 Not yet in force, 10 actions required.
101 Legislative texts based on or largely inspired by the UNCITRAL Model Law
Harmonization of international trade law 117
The failure of this model law can probably be ascribed to two factors: firstly,
the 1996 Model Law contained provisions on electronic signatures which
many countries regarded as sufficient as a basis for their own solutions and,
secondly, the 2001 Model Law was regarded as insufficient to solve the prob-
lems involved with electronic signatures and legislators therefore preferred to
adopt their own solutions in keeping with the requirements and quirks of their
domestic laws.119
As is evident from the above list of instruments, UNCITRAL has been
playing a key role in the process of international trade law harmonization and
is likely to do so in future too. Its successes so far can be ascribed to the inclu-
sive and democratic manner in which it is composed and in which it carries
out its work. The drafting of its instruments follows a cumbersome and fairly
slow process of consultation, drafting in specialist working groups and further
discussion and assessment of such drafts by UNCITRAL itself.
UNCITRAL has been reasonably successful in identifying areas of inter-
national trade law in need of harmonization and drafting appropriate instru-
ments, even if not all of its instruments have met with the same measure of
acceptance. It is sometimes difficult to gauge the level of acceptance and
therefore success of an instrument, as there usually is quite a long time lapse
between the initial drafting and the entry into force of the convention and its
subsequent adoption by further countries. In the case of the very successful
CISG, almost eight years elapsed between its adoption in 1980 and its entry
into force in 1988, but since then it has gained widespread support with new
countries acceding every year since. It may therefore take decades, rather than
years, to assess whether a particular instrument has met with success or not.
131 For instance, the American Uniform Commercial Code contained a number of
trade terms such as F.O.B., F.A.S., C.I.F. and C&F – see ss. 2-319 to 2-322 – which
carried meanings slightly different from the ICC Incoterms. In the latest revision of the
UCC, these trade terms have been specifically abandoned due to the confusion caused
with the ICC Incoterms. In a legislative note to s 2-319 it is stated that ‘Sections 2-319
through 2-324 have been eliminated because they are inconsistent with modern
commercial practices.’
132 ICC INCOTERMS 2000: Report of the Secretary-General (A/CN.9/479).
133 D’Arcy et al. (2000, pp. 7–8); August (2004, pp. 593–4); Huber and Widmer
(2005, p. 338) Art 30 §§ 3 and 4; Honnold (1999, p. 206). See for instance United
States BP Oil Intern., Ltd. v Empresa Estatal Petoleos de Ecuador, 332 F.3d 333, 335,
200 A.L.R. Fed. 771 (5th Cir. 2003); Argentina 2 July 2003 Juzgado Comercial
[Commercial Court] Buenos Aires (Arbatax S.A. Reorganization Proceeding)
http://cisgw3.law.pace.edu/cases/030702a1.html, accessed 5 June 2009; United States
St. Paul Guardian Ins. Co. v Neuromed Medical Systems & Support, GMBH, 53 Fed.
Appx. 173 (2d Cir. 2002); Russia 11 April 1997 Arbitration proceeding 220/1996
http://cisgw3.law.pace.edu/cases/970411r1.html, accessed 5 June 2009; Spain 3
October 2002 Audiencia Provincial [Appellate Court] Pontevedra (Frozen stockfish
case) http://cisgw3.law.pace.edu/cases/021003s4.html, accessed 5 June 2009.
134 J. Ramberg (1999, p. 10); Honnold (1999, p. 206); Huber and Widmer (2005,
p. 338) Art 30 §§ 3 and 4.
135 J. Ramberg (1999, pp. 38–50; 8–17); Gabriel (2001, pp. 41–73).
122 Globalization and private law
The first version of the Uniform Customs and Practice for Documentary
Credits (UCP) was published in 1933 as a set of voluntary rules to be adopted
mainly by banks when dealing with documentary credits in the payment
process.136 Like Incoterms, the UCP has undergone a number of revisions over
the years to keep abreast with the changes that have taken place in international
banking, insurance and transport practice and have been introduced by newer
technologies.137 The latest version is UCP 600, which came into effect on 1
July 2007. In his foreword to UCP 600, the Secretary General of the ICC states
that ‘[t]he 39 articles of UCP 600 are a comprehensive and practical working
aid to bankers, lawyers, importers, and exporters, transport executives, educa-
tors, and everyone involved in letter of credit transactions worldwide.’138
The drafting process of UCP 600 involved extensive consultations and
deliberations to ensure its eventual acceptability. The ICC Secretary General
describes the process as follows:139
A range of individuals and groups contributed to the current revision, which is enti-
tled UCP 600. These include the UCP Drafting Group, which sifted through more
than 5000 individual comments before arriving at this consensus text; the UCP
Consulting Group, consisting of members from more than 25 countries, which
served as the advisory body reacting to and proposing changes to the various drafts;
the more than 400 members of the ICC Commission on Banking Technique and
Practice who made pertinent suggestions for changes in the text; and ICC national
committees worldwide which took an active role in consolidating comments from
their members.
This description provides evidence that the rules have been developed and
drafted in a transparent and democratic manner by the ICC by consulting as
widely as possible. Although these rules are in the nature of a voluntary code,
the vast majority of banks worldwide adhere to them by incorporating them
into letters of credit that they issue.140
Incoterms and the UCP provide examples of voluntary rules that have been
very successful in harmonizing international trade by providing clear and
succinct rules that are well known internationally and are very widely used in
international trade. The success of Incoterms has even caused the drafters of
the American Uniform Commercial Code to jettison similar trade terms that
had existed in the UCC in the latest suggested amendments to the UCC.141
3.3.3 Unidroit
The International Institute for the Unification of Private Law (Unidroit) is an
independent intergovernmental organization with its seat in the Villa
Aldobrandini in Rome. Its purpose is to study needs and methods for modern-
izing, harmonizing and co-ordinating private and in particular commercial law
as between states and groups of states. It was founded in 1926 as an auxiliary
organ of the League of Nations. After the demise of the League it was re-estab-
lished in 1940 on the basis of a multilateral agreement, the UNIDROIT
Statute.142
Unidroit currently consists of 63 Member States from five continents which
represent a variety of different legal, economic and political systems as well
as different cultural backgrounds. Its independent status as an intergovern-
mental organization has enabled it to use working methods which have made
it a particularly suitable forum to engage in more technical issues.143
Unidroit’s basic statutory objective is to prepare modern and, where appropri-
ate, harmonized uniform rules of private law understood in a broad sense.
These uniform rules are mostly aimed at the harmonization of substantive law
rules.144
The uniform rules drawn up by Unidroit have traditionally been in the form
of international conventions. The low priority that is sometimes given to the
implementation of these conventions has forced Unidroit to consider the use
of alternative methods of unification and harmonization, especially in those
instances where a binding instrument was not necessarily essential.145 Such
alternatives have included model laws that states may utilize when drafting
domestic legislation or general principles which are addressed directly to
judges, arbitrators and contracting parties who can freely decide whether to
use them or not.146
Where the Governing Council has identified a subject that it deems in need
of harmonization, it will appoint a study group. The study group is usually
chaired by a member of the council, and is made up of experts in the particu-
lar field identified by the secretariat. The secretariat endeavours to assemble a
been eliminated because they are inconsistent with modern commercial practices.’ And
the Official Comment states: ‘Sections 2-319 through 2-324 have been repealed. The
effect of a party’s use of shipping terms such as “FOB,” “CIF,” or the like, absent any
express agreement to the meaning of the terms, must be interpreted in light of any
applicable usage of trade and any course of performance or course of dealing between
the parties.’
142 http://www.unidroit.org/dynasite.cfm?dsmid=84219, accessed 5 June 2009.
143 http://www.unidroit.org/dynasite.cfm?dsmid=84219, accessed 5 June 2009.
144 http://www.unidroit.org/dynasite.cfm?dsmid=84219, accessed 5 June 2009.
145 http://www.unidroit.org/dynasite.cfm?dsmid=84219, accessed 5 June 2009.
146 http://www.unidroit.org/dynasite.cfm?dsmid=84219, accessed 5 June 2009.
124 Globalization and private law
reconciling differences among various national rules of civil procedure, taking into
account the peculiarities of transnational disputes as compared to purely domestic
ones. They may not only serve as guidelines for code projects in countries without
longer procedural traditions, but may initiate law reforms even in countries with
long and high quality procedural traditions; they may also be applied by analogy in
international commercial arbitration.
The WCO started out as a European initiative to found a regional customs co-
operation organization in 1947, but was formalized as an international conven-
tion in 1952, establishing the Customs Co-operation Council. In 1994 it
became known as the World Customs Organization to reflect the fact that it
had become a truly international organization.158 It currently has 174 members
accounting for 98 per cent of international trade.159
One of the key tasks of the Council was to establish a harmonized system
for the classification of goods for tariff purposes.160 It was recognized that the
implementation of reciprocal tariff agreements under the 1947 General
Agreement on Tariffs and Trade (GATT) would suffer if identical goods were
not classified in an identical way for tariff purposes. This eventually led to the
1983 Brussels International Convention on the Harmonized Commodity
Description and Coding System (‘Harmonized System’), according to which
all products are classified for customs purposes on importation.161 All
Member States are obliged to apply their customs laws according to the
Harmonized System.162 The Harmonized System has played an important part
4 CONCLUSION
From the historical accounts of the different areas of international trade law
where harmonization has been attempted, it becomes clear that not all instru-
ments have enjoyed equal success or support, although with some instruments
it is just too early to tell what their eventual impact will be. One must realize
from the outset that the development and drafting process will be cumbersome
and slow if it is to adhere to basic democratic values of inclusiveness, repre-
sentativeness and transparency. However, circumventing this slow process
will probably lead to an instrument which will not find much favour.
The description of the various methods of harmonization that have been
employed by the different agents and promoters of the harmonization of inter-
national trade law and of those areas of the law where harmonization has been
attempted provides an indication of the critical success factors necessary to
achieve effective and real harmonization. These factors include:
amendments to the Harmonized System to provide for new classifications and new
goods. See Williams (2002, pp. 231–2) § 526.
163 See Art 7 of the Convention. See also South Africa Commissioner for
Customs and Excise v Kemtek Imaging Systems Ltd 1999 (4) SA 906 (SCA) § [3];
Williams, (2002, pp. 231–232) § 526. See also the information provided by the WCO
on its website at http://www.wcoomd.org/files/1.%20Public%20files/
PDFandDocuments/Conventions/Hsconve21.pdf, accessed 5 June 2009.
164 See for instance the following classic South African customs cases: African
Oxygen Ltd v Secretary for Customs and Excise 1969 3 SA 391 (T); Autoware (Pty) Ltd
v Secretary for Customs and Excise 1975 (4) SA 318 (W); Secretary for Customs and
Excise v Thomas Barlow and Sons Ltd 1970 (2) SA 660 (A); International Business
Machines SA (Pty) Ltd v Commissioner for Customs and Excise 1985 (4) SA 852 (A);
Commissioner for Customs and Excise v C I Caravans (Pty) Ltd 1993 (1) SA 138 (N);
Commissioner for Customs and Excise v Capital Meats CC 1991 (1) SA 570 (SCA).
128 Globalization and private law
REFERENCES
Conventions
1924 Hague Rules (International Convention for the Unification of Certain Rules of
Law Relating to Bills of Lading)
1929 Warsaw Convention for the Unification of Certain Rules Relating to
International Carriage by Air
1968 Hague-Visby Rules (Protocol of 23 February 1968)
1969 Vienna Convention on the Law of Treaties
1970 Brussels International Convention on Travel Contracts
1973 Washington Convention providing a Uniform Law on the Form of an
International Will
1983 Brussels International Convention on the Harmonized Commodity Description
and Coding System
1983 Geneva Convention on Agency in the International Sale of Goods
1988 Ottowa UNIDROIT Convention on International Factoring
1988 Ottowa UNIDROIT Convention on International Financial Leasing
1995 Rome UNIDROIT Convention on Stolen or Illegally Exported Cultural Objects
2001 Cape Town Protocol to the Convention on International Interests in Mobile
Equipment on Matters specific to Aircraft Equipment
2007 Luxembourg Protocol to the Convention on International Interests in Mobile
Equipment on Matters specific to Railway Rolling Stock
Legislation
Case Law
Argentina 2 July 2003 Juzgado Comercial [Commercial Court] Buenos Aires (Arbatax
S.A. Reorganization Proceeding) http://cisgw3.law.pace.edu/cases/030702a1.html
accessed 5 June 2009
Australia 24 October 2008 Federal Court [South Australia District] (Hannaford v
Australian Farmlink Pty Ltd) http://cisgw3.law.pace.edu/cases/081024a2.html
accessed 5 June 2009
Austria 13 April 2000 Oberster Gerichtshof [Supreme Court] http://cisgw3.law.
pace.edu/cases/000413a3.html accessed 5 June 2009
Austria 15 June 1994 Vienna Arbitration proceeding SCH-4366 (Rolled metal sheets
case) http://cisgw3.law.pace.edu/cases/940615a3.html accessed 5 June 2009
130 Globalization and private law
Belarus 20 May 2003 Supreme Economic Court of the Republic of Belarus (Holzimpex
Inc. v State Farm-Combine Sozh) http://cisgw3.law.pace.edu/cases/030520b5.html
accessed 5 June 2009
China 10 August 1999 CIETAC Arbitration proceeding (Raincoat case)
http://cisgw3.law.pace.edu/cases/990810c1.html accessed 5 June 2009
China 26 June 2003 CIETAC Arbitration proceeding (Alumina case)
http://cisgw3.law.pace.edu/cases/030626c1.html accessed 5 June 2009
China 18 December 2003 CIETAC Arbitration proceeding (AOE and PECVD
machines case) http://cisgw3.law.pace.edu/cases/031218c1.html accessed 5 June
2009
China 14 December 2004 Xiamen Intermediate People’s Court [District Court] of
Fujian Province (Xiamen Xiang Yu Group Corporation v Mechel Trading AG)
http://cisgw3.law.pace.edu/cases/041214c1.html accessed 5 June 2009
China 23 September 2005 New Pudong District People’s Court [District Court] of
Shanghai (Xi’an Yun Chang Trade Ltd. v An Tai International (USA))
http://cisgw3.law.pace.edu/cases/050923c1.html accessed 5 June 2009
England Fothergill v Monarch Airlines Ltd [1980] 2 All ER 696
England James Buchanan & Co Ltd v Babco Forwarding and Shipping (UK) Ltd
[1977] 3 All ER 1048 at 1052.
France 23 October 1996 Appellate Court Grenoble (Gaec des Beauches v Teso Ten
Elsen) http://cisgw3.law.pace.edu/cases/961023f1.html accessed 5 June 2009
Germany 9 January 2002 Bundesgerichtshof [Federal Supreme Court] (Powdered milk
case) http://cisgw3.law.pace.edu/cases/020109g1.html accessed 5 June 2009
Germany 8 January 2004 Landgericht [District Court] Trier http://cisgw3.law.pace.edu/
cases/040108g1.html accessed 5 June 2009
Italy 12 July 2000 Tribunale [District Court] Vigevano (Rheinland Versicherungen v
Atlarex) http://cisgw3.law.pace.edu/cases/000712i3.html accessed 5 June 2009
Italy 25 February 2004 Tribunale [District Court] Padova http://cisgw3.law.pace.edu/
cases/040225i3.html accessed 5 June 2009
Italy 11 December 2008 Tribunale di Forli [District Court] (Mitias v Solidea S.r.l.)
http://cisgw3.law.pace.edu/cases/081211i3.html accessed 5 June 2009
Netherlands 10 February 2005 Netherlands Arbitration Institute (interim award)
http://cisgw3.law.pace.edu/cases/050210n1.html accessed 5 June 2009
Russia 11 April 1997 Arbitration proceeding 220/1996 http://cisgw3.law.pace.edu/
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Russia 6 June 2003 Arbitration proceeding 97/2002 http://cisgw3.law.pace.edu/
cases/030606r1.html accessed 5 June 2009
South Africa African Oxygen Ltd v Secretary for Customs and Excise 1969 3 SA 391
(T)
South Africa Autoware (Pty) Ltd v Secretary for Customs and Excise 1975 (4) SA 318
(W)
South Africa Commissioner for Customs and Excise v C I Caravans (Pty) Ltd 1993 (1)
SA 138 (N)
South Africa Commissioner for Customs and Excise v Capital Meats CC 1991 (1) SA
570 (SCA)
South Africa Commissioner for Customs and Excise v Kemtek Imaging Systems Ltd
1999 (4) SA 906 (SCA)
South Africa Improvair (Cape) (Pty) Ltd v Establissements Neu 1983 2 SA (C)
South Africa International Business Machines SA (Pty) Ltd v Commissioner for
Customs and Excise 1985 (4) SA 852 (A)
Harmonization of international trade law 131
South Africa Laconian Maritime Enterprises Ltd v Agromar Lineas Ltd 1986 3 SA 509
(D)
South Africa Secretary for Customs and Excise v Thomas Barlow and Sons Ltd 1970
(2) SA 660 (A)
Spain 3 October 2002 Audiencia Provincial [Appellate Court] Pontevedra (Frozen
stockfish case) http://cisgw3.law.pace.edu/cases/021003s4.html accessed 5 June
2009
United States BP Oil Intern., Ltd. v Empresa Estatal Petoleos de Ecuador, 332 F.3d
333, 335, 200 A.L.R. Fed. 771 (5th Cir. 2003)
United States Delchi Carrier SpA v Rotorex Corp., 71 F.3d 1024, 1028 (2d Cir. 1995)
United States MCC-Marble Ceramic Center, Inc., v Ceramica Nuova d’Agostino,
S.p.A., 144 F.3d 1384, 1388–9 (11th Cir. 1998)
United States Medical Marketing International, Inc., v Internazionale Medico
Scientifica, S.R.L., 99-0380, 1999 U.S. Dist. LEXIS 7380, at (E.D. La. May 17,
1999) http://cisgw3.law.pace.edu/cases/990517u1.html accessed 5 June 2009
United States St. Paul Guardian Ins. Co. v Neuromed Medical Systems & Support,
GMBH, 53 Fed. Appx. 173 (2d Cir. 2002)
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PART III
Public law
5. The relation between private law and
administrative law in view of
globalization
Frits Stroink
139
140 Globalization and private law
In recent years there has been a discussion in the Netherlands about the
responsibility and liability of a supervising authority when the licence holder
does not meet the conditions of the licence. Does the supervisor then commit
a tort against an injured person? At this moment the Dutch judge is reserved
(only in cases of grave errors) reviewing the case but I do not exclude in the
coming years a tendency towards a more strict liability.
So, we can say that administrative law very often plays an important role in
the civil law relations between citizens. Administrative law is an addition to
and a correction of civil law.1 Administrative law contributes to a well-
functioning system of civil law. In a modern society a well-functioning civil
law is unthinkable without the existence of a developed system of administra-
tive law. Civil law and administrative law are closely connected, interwoven.
The Benthem case as decided by the Strasbourg Human Rights Court is an
apt illustration of the relation between civil law and administrative law. The
refusal of the environmental licence affected the applicant’s civil rights and
obligations in the sense of Article 6 of the European Convention on Human
Rights (ECHR) because the licence requirement limited the applicant’s right
of ownership and freedom of contract. This meant that the applicant had a
right of access to an independent judicial body as stated in Article 6 ECHR. At
that time there was no such right in the Netherlands. In many cases there was
a right of administrative appeal to the crown, that is, the Government. In
consequence of the Benthem case the Dutch legislator abolished the right of
appeal to the Crown and created the possibility of appeal to an independent
administrative judge, being a division of the Council of State.2
is civil law applicable to these civil law relations but also general principles of
proper administration.
This is, you can say, a kind of mixed legal system. Both civil law and admin-
istrative law are applicable to contracts between the administration and the citi-
zen. The reason for this system is that the administration has always to act in
the general interest, as well as a civil law legal person. This doctrine was devel-
oped by the Dutch Supreme Court4 and laid down in the General Code of
Administrative Law in 1994.5 Under Dutch law the civil judge is the competent
judge in these cases. But in France, for example, some contracts between the
administration and the citizen are considered to be exclusively administrative
and therefore only the administrative judge is the competent judge. The deci-
sive criterion is the service public.6 In Germany it is sometimes possible to
make a contract between administration and citizen instead of the conferment
of a (unilateral) administrative decision.7 In these cases the administrative
judge is the competent judge. Under Dutch law the civil judge is also compe-
tent concerning the decision to make a civil law contract,8 but France and
Belgium know the phenomenon of the acte detachable.9 This means that the
administrative judge is competent to test the administrative decision to make a
civil contract. The conclusion is that contracts between the administration and
a citizen can be purely civil law contracts, exclusively administrative law
contracts or of a mixed nature. In many countries the administration also influ-
ences the civil law contracts between the administration and the citizen.
world the administrative law systems are well developed and also contribute –
(see Section 1) to the stability of civil law. In developing countries, however,
administrative law is underdeveloped and does not even always exist in fact.
Of course (see again Section 1) this has a negative effect on civil law.
In the European Union the situation is more complicated. Every member of
the EU has its own system of administrative law.12 The European Court of
Justice accepts the differences of the administrative law systems of the
Member States, at least within certain conditions. For example the effectivity
of the implementation of EU law in national law must be guaranteed. But there
is an autonomy of procedural law and of the organization of the judiciary. In
the field of substantive administrative law however there is a strong tendency
towards harmonization and unification. But, in spite of the differences of the
national administrative law systems in western countries, all administrative
law systems have common features. They are governed by the principle of the
rule of law (Rechtsstaat). This principle gives guarantees for the quality and
legitimacy of administrative law.
These common features are:
4 CONCLUSION
In every country, developed or undeveloped, a well-functioning system of
administrative law (the administration complying with general principles of
proper administration, acting on the basis of the law and an accessible inde-
pendent judge) is a precondition for a well-functioning system of civil law.
Administrative law partly determines the relation between citizens (via unilat-
eral administrative decisions and civil law contracts) and increases the trust of
one party in another party, and the administration sometimes gives protection
when a contracting partner fails. In other words, a well-functioning system of
administrative law is good for the stability of private law relations. Civil law
and administrative law are in developed countries closely interlinked and
connected.
Is there a possibility of globalizing, that is, harmonizing and unifying,
administrative law in the near future? Here we have to distinguish between
non-substantive administrative law (roughly speaking the rule of law: the prin-
ciple of legality, general principles of proper administration, judicial review)
and substantive administrative law (the rights and duties of a citizen based on
an administrative decision).
Maybe, in the distant future, the idea of the rule of law can be realized in
the whole world more or less.13 But the globalizing of substantive administra-
tive law is not very realistic, even in the distant future; at best it will be on a
very limited scale.14 The differences in economic and law development
13 Kingsbury et al., supra note 11, make a distinction in: (1) procedural partici-
pation and transparency; (2) reasoned decisions; (3) review and substantive standards:
proportionality, means–ends rationality, avoidance of unnecessary restrictive means,
legitimate expectations.
14 Kingsbury et al. supra note 11, distinguish five types of global administra-
tion: (1) administration by formal international organizations; (2) administration
based on collective action by transnational networks of cooperative arrangements
between national regulatory officials; (3) distributed administration conducted by
144 Globalization and private law
between the countries in the world are too big. Furthermore, globalizing of
administrative law presupposes a world government. It is not likely that there
will be a world government in the near future and or even in the distant future.
As long as nations exist, there will be national administrative law. If globaliz-
ing of private law in the sense of harmonizing and unifying substantive private
law is possible in the (near) future – I cannot judge that – it is advisable to
recognize that in many cases civil law relations are influenced by national (or
regional) administrative decisions. I think this is an important impediment to
harmonizing and unifying private law on a world scale.
REFERENCES
Auby, J.-B. and L. Cluzel-Métayer (2007),’Administrative Law in France’, in R.
Seerden (ed.), Administrative Law of the European Union, Its Member States and
the United States: A Comparative Analysis, 2nd edn, Antwerp and Oxford:
Intersentia.
Kingsbury, B., N. Kirsch and R.B. Stewart (eds) (2005), The Emergence of Global
Administrative Law, http://law.duke.edu/journal/lcp.
Schröder, M. (2007), ‘Administrative Law in Germany’, in R. Seerden (ed.),
Administrative Law of the European Union, Its Member States and the United
States: A Comparative Analysis, 2nd edn, Antwerp and Oxford: Intersentia.
Seerden, R. (ed.) (2007), Administrative Law of the European Union, Its Member
States and the United States: A Comparative Analysis, 2nd edn, Antwerp and
Oxford: Intersentia.
Seerden, R. and F. Stroink (2007), ‘Administrative Law in the Netherlands’, in R.
Seerden (ed.), Administrative Law of the European Union, Its Member States and
the United States: A Comparative Analysis, 2nd edn, Antwerp and Oxford:
Intersentia.
Wauters, K. (2009, forthcoming), Rechtsbescherming en Overheidsovereenkomsten,
thesis to be defended in Maastricht, Antwerp and Oxford: Intersentia.
national regulators under treaty, network or other cooperative regimes; (4) administra-
tion by intergovernmental private arrangements; (5) administration by private institu-
tions with regulatory functions.
6. Beyond parochialism? Transnational
contextualization in constitutional
interpretation in South Africa (with
particular reference to jurisprudence of
the Constitutional Court)1
Lourens du Plessis
145
146 Globalization and private law
(re)sources? These specific questions will give shape to the discussion that
follows. The conditions just referred to have often enough, but not invariably,
yielded optimal exploration and exploitation of transnational (re)sources.
Factors and forces inhibiting the best possible utilization of transnational
(re)sources in South African constitutional interpretation will be identified and
some remedial action suggested.
The discussion will commence with a survey of constitutional jurispru-
dence that has earned the South African Constitutional Court a complimentary
reputation for its universalist interpretation of constitutional rights. It will be
shown that the enthusiastic court’s mistaken conflation of international and
foreign law, in the process of having ‘due regard to’ (or ‘considering’) them,
has nonetheless instilled a useful and usable sense of their shared transnation-
ality.
Instances of and patterns in recourse to international law in the
Constitutional Court’s jurisprudence on constitutional interpretation will be
considered in the second main section of this chapter, tracing the fate of
Chaskalson P’s broadminded ‘framework dictum’ in S v Makwanyane and
Another.4 The lamentable underuse of section 233 of the 1996 Constitution
will also be dealt with. An example of how international law has contributed
to the making of South African domestic law regarding resort to travaux
préparatoires in constitutional and statutory interpretation will conclude the
international law discussion.
In the third main section of this chapter constitutional comparativism in
South African constitutional interpretation will be discussed, considering
enthusiasm as well as scepticism for this endeavour and showing that the
former mood unquestionably prevails. Challenges (still) facing constitutional
comparativists in South Africa to develop theoretically sound methodologies
of comparison will also briefly be identified.
4 1995 (6) BCLR 665 (CC), 1995 (3) SA 391, 1995 (2) SACR 1 (CC) at para.
35.
5 1995 (6) BCLR 665 (CC), 1995 (3) SA 391, 1995 (2) SACR 1 (CC).
148 Globalization and private law
In the course of the arguments addressed to us, we were referred to books and arti-
cles on the death sentence, and to judgments dealing with challenges made to capi-
tal punishment in the Courts of other countries and in international tribunals. The
international and foreign authorities are of value because they analyse arguments
for and against the death sentence and show how Courts of other jurisdictions have
dealt with this vexed issue. For that reason alone they require our attention. They
may also have to be considered because of their relevance to s 35(1) of the
Constitution…7
6 ‘Having regard to’ international and foreign (case) law in the language of
section 35(1) of the transitional Constitution and ‘considering’ international and
foreign law in the language of sections 39(1), (b) and (c) of the 1996 Constitution – cf.
1 above.
7 S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391,
1995 (2) SACR 1 (CC) at para. 34.
8 S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391,
1995 (2) SACR 1 (CC) at para. 34.
9 On international law thus binding cf. 3.2 below.
Transnational contextualization in South Africa 149
These dicta involve two findings of far-reaching significance for – and bind-
ing on all – South African courts construing the Bill of Rights (and the
Constitution). The first finding is that the words ‘international law’ in section
35(1) of the transitional (and section 39(1)(b) of the 1996) Constitution(s)
refer to binding as well as ‘non-binding’ international law.11 The second is that
international agreements and customary law ‘provide a framework within
which … the Bill of Rights … can be evaluated and understood’12 (the ‘frame-
work dictum’). The implications of these findings will be considered when the
use of international law in constitutional interpretation is discussed in more
detail below.13
In dealing with comparative law we must bear in mind that we are required to
construe the South African Constitution, and not an international instrument or the
constitution of some foreign country, and that this has to be done with due regard to
our legal system, our history and circumstances, and the structure and language of
our own Constitution … We can derive assistance from public international law and
foreign case law, but we are in no way bound to follow it.14
These words of caution have, in the post-Makwanyane case law, been sounded
repeatedly. It is notable too, as was suggested before and as Chaskalson P.
explicitly reminds us, that public international and foreign law, from which, in
10 S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391,
1995 (2) SACR 1 (CC) at para. 35.
11 As will be argued in 3.2 below, ‘non-binding’ international law is strictly
speaking a misnomer.
12 S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391,
1995 (2) SACR 1 (CC) at para. 35.
13 Cf. 3.3 below.
14 S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391,
1995 (2) SACR 1 (CC) at para. 39.
150 Globalization and private law
terms of sections 35(1) of the transitional and 39(1)(b) and (c) of the 1996
Constitution, assistance may be derived in constitutional interpretation, are in
no way binding on any court. Chaskalson P, however, unfortunately fails to
mention that a court must also always be alert to the possibility that it may
indeed be bound to follow certain precepts of international law, because it is
required by constitutional provisions other than sections 35(1) (and 39(1)(b))
to do so. Coming to mind in this regard are section 231 of the transitional and
sections 231–3 of the 1996 Constitution. Chaskalson P’s failure to consider the
said possibility created the (probably unintended and mistaken) impression
that, as transnational driving forces in constitutional interpretation, interna-
tional and foreign law are equatable. However, this mistake, as will next be
shown, has considerably aided the identification of ‘the transnational context’
with its significant consequences for constitutional interpretation.
151997 (12) BCLR 1675 (CC), 1998 (2) SA 38 (CC) at para. 26.
16Mentioned in section 35(1) of the transitional (and in section 39(1)(b) of the
1996) Constitution.
17 Mentioned in section 35(1) of the transitional (and in section 39(1)(c) of the
1996) Constitution.
18 Bryde (2003, pp. 61–75); cf. also Peters (2007, pp. 251–308).
Transnational contextualization in South Africa 151
on) international and foreign law is best upheld because the Constitution
requires that, when interpreting the Bill of Rights, international and foreign
law are to be considered in different ways: the former must be considered
(section 39(1)(b)) while the latter may be considered (section 39(1)(b)). As
argued before – on the basis of a dictum of Chaskalson P in S v Makwanyane
and Another19 – both international and foreign law may also be considered in
the interpretation of the rest of the Constitution. However, the written consti-
tutional text (sections 39(1)(b) and (c) in particular), as well as the case law
amplifying it, still does not anticipate all possibilities. Foreign law, in the
domestic context, can never have more than persuasive force while some inter-
national law may well be as binding or prescriptive as domestic law. This sets
international and foreign law apart – and has to be reckoned with in constitu-
tional interpretation and, as a matter of fact, in the interpretation and applica-
tion of all law.
The role of international and foreign law as two distinct sources of author-
ity in South African constitutional interpretation will next be discussed seri-
atim without, however, suggesting that it is impossible to label them with a
generic tag. That both international and foreign law can and do have an effect
in constitutional interpretation is a manifestation of legal (and, in particular, a
public law) globalization, emphasizing – as was pointed out before – that a
national Constitution is also embedded in a transnational reality beyond the
geographic and the legally and constitutionally defined precincts of the juris-
diction whose supreme law it is.20 Dealing with international and foreign law
in constitutional interpretation thus amounts to a generic reading procedure
that may aptly be depicted as transnational contextualization.
3 INTERNATIONAL LAW
3.1 International Law, Globalization and South Africa’s ‘New
Constitution’
must be interpreted in such a way as not to conflict with the principles of interna-
tional law … ‘[T]he state which disclaims the authority of international law places
19 1995 (6) BCLR 665 (CC), 1995 (3) SA 391, 1995 (2) SACR 1 (CC) at para.
34; cf. 2.1.1 above.
20 Cf. 1 above.
152 Globalization and private law
herself outside the circle of civilized nations.’ It is only by a strict adherence to these
recognized principles that our young state can hope to acquire and maintain the
respect of all civilized communities, and so preserve its own national indepen-
dence.21
21 CC Maynard et alii v The Field Cornet of Pretoria (1894) 1 SAR 214 at 223.
22 Dugard (2000, pp. 19–20).
23 ‘While apartheid undermined and discredited the law of South Africa, it
succeeded, perversely, in injecting notions of racial equality, self-determination and
respect for human rights into an international legal order that in 1945 had few devel-
oped rules on these subjects.’ Dugard (2000, p. 21).
24 Cf. 1 above.
25 1995 (6) BCLR 665 (CC), 1995 (3) SA 391, 1995 (2) SACR 1 (CC) at paras
34, 35 and 39. Cf. 2.1 above and, in general, du Plessis (2007b, pp. 309–40) at p. 310.
Transnational contextualization in South Africa 153
Sections 39(1)(b) and (c) of the South African Constitution (referred to previ-
ously33) are provisions not commonly included in constitutions, and reliance
on international and foreign law in constitutional interpretation is possible
without such constitutional authorization (which does not, however, mean that
the inclusion of the said provisions in the South African Constitution is
insignificant). More commonly and typically, constitutions provide for the
recognition – and incorporation into domestic law – of (treaty and customary)
international law. The ‘black-letter provisions’ of the South African
Constitution geared to achieve these effects are the previously referred to
sections 231 and 232. International law thus recognized and incorporated is
sometimes referred to as ‘binding’ international law to distinguish it from
‘non-binding’ international law, which is the vast body of international law not
brought to bear in the domestic legal system by virtue of sections 231 and 232.
31 Cf., however, the South African Constitutional Court’s (contrary) view on the
status of the Vienna Convention on the Law of Treaties in constitutional interpretation
in S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391 (CC),
1995 (2) SACR 1 (CC) at para. 16 – discussed below.
32 The Shorter Oxford English Dictionary on CD-ROM 5th edn Version 2.0
(2002), Oxford University Press.
33 In 1 above.
Transnational contextualization in South Africa 155
34 S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391,
1995 (2) SACR 1 (CC) at para. 35.
35 Cf. 2.1.2 above.
36 Du Plessis (2007b, pp. 309–40) at p. 312.
37 Cf. 3.7 below.
38 S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391,
1995 (2) SACR 1 (CC) at para. 35.
39 Cf. 3.2 above.
40 S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391,
1995 (2) SACR 1 (CC) at para. 35. Mokgoro, in a similar vein, held that the
Constitution ‘requires courts to proceed to public international law and foreign case
law for guidance in constitutional interpretation, thereby promoting the ideal and inter-
nationally accepted values in the cultivation of a human rights jurisprudence for South
Africa’ – S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391,
1995 (2) SACR 1 (CC) at para. 304.
41 Cf. 3.2 above.
156 Globalization and private law
49 1996 (8) BCLR 1015 (CC), 1996 (4) SA 672 (CC). On the politically contro-
versial and dilemmatic dimensions of this case cf. du Plessis (2007a, pp. 51–64).
50 S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391
(CC), 1995 (2) SACR 1 (CC) at para. 16.
51 S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391,
1995 (2) SACR 1 (CC) at para. 35 per Chaskalson and at para. 304 Mokgoro.
52 34 of 1995.
53 Presently section 34 of the 1996 Constitution.
158 Globalization and private law
that section 20(7) thus breached international law.54 In terms of the said
Conventions: ‘The High Contracting Parties undertake to enact any legislation
necessary to provide effective penal sanctions for persons committing, or
ordering to be committed, any of the grave breaches …’
The Constitutional Court (per Mahomed DP) thought that ‘[t]he issue
which falls to be determined in this Court is whether section 20(7) of the Act
is inconsistent with the Constitution’ and ‘the enquiry as to whether or not
international law prescribes a different duty is irrelevant to that determina-
tion’.55 Section 35(1) of the transitional Constitution (the predecessor to
section 39(1)(b) of the 1996 Constitution), the court thought, directs it ‘only to
“have regard” to public international law if it is applicable to the protection of
the rights entrenched in the chapter’ (that is the transitional Bill of Rights).56
This meant that only international law ‘binding’ in terms of black-letter consti-
tutional law qualified to be ‘(public) international law’ as envisaged in section
35(1) of the transitional (and section 39(1)(b) of the 1996) Constitution. This
is a far-reaching attenuation (if not reversal) of (the legal effect of) Chaskalson
P’s framework dictum in Makwanyane.57 Mahomed DP did not treat ‘binding’
as well as ‘non-binding’ international law as a framework within which the
Bill of Rights ‘can be evaluated and understood’, but in his (and the court’s)
view only ‘binding’ international law passing muster in terms of black-letter
constitutional law qualified to be considered when interpreting the Bill of
Rights. The international framework for Bill of Rights interpretation was thus
significantly truncated, actually rendering provisions like section 35(1) and
section 39(1)(b) superfluous, because a court, tribunal or forum is at any rate
bound to follow ‘binding’ international law; there is no need for the said provi-
sions to encourage it to do so.
Court’s case law history, not irreversibly or even significantly derogated from
the court’s ‘universalist’ attitude towards international law in constitutional
interpretation,58 and Government of the RSA and Others v Grootboom and
Others59 – a key judgment on the justiciability of socioeconomic rights –
tellingly demonstrated this. At issue in Grootboom was the section 26 consti-
tutional right to adequate basic shelter or housing, pending the obtainment of
permanent accommodation, of 510 children and 390 adults evicted from their
informal homes situated on private land earmarked for formal low-cost hous-
ing.
In construing section 26, which guarantees everyone’s right to adequate
housing60 and enjoins the state to take reasonable legislative and other
measures within its available resources to achieve the realization of this
right,61 the court per Yacoob J considered, amongst other things, sources of
international law, and quoted Chaskalson P’s framework dictum in
Makwanyane62 with approval, adding a significant qualification:63
The relevant international law can be a guide to interpretation but the weight to be
attached to any particular principle or rule of international law will vary. However,
where the relevant principle of international law binds South Africa, it may be
directly applicable.
The court thus honoured – and, bearing AZAPO64 in mind indeed restored –
the distinction between international law binding on South Africa and other
sources of international law that must, in addition to binding law, be consid-
ered in the interpretation of the Bill of Rights. The court concentrated its
inquiry mainly on Articles 11.1 and 2.1 of the International Covenant on
Economic, Social and Cultural Rights (ICESCR) and pointed out differences
of interpretive significance between the formulation of the provisions of the
Covenant and section 26 of the South African Constitution.65 However, the
court also thought that the relevant general comments issued by the United
Nations Committee on Economic, Social and Cultural Rights regarding the
66 Government of the RSA and Others v Grootboom and Others 2000 (11) BCLR
1169 (CC), 2001 (1) SA 46 (CC) at para. 29.
67 S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391,
1995 (2) SACR 1 (CC).
68 Azanian People’s Organization (AZAPO) and Others v President of the
Republic of South Africa and Others 1996 (8) BCLR 1015 (CC), 1996 (4) SA 672 (CC).
69 Government of the RSA and Others v Grootboom and Others 2000 (11) BCLR
1169 (CC), 2001 (1) SA 46 (CC).
70 1996 (4) BCLR 537 (CC), 1996 (3) SA 165 (CC).
71 This right was guaranteed in section 32(b) of the transitional Constitution.
Transnational contextualization in South Africa 161
72 Provided that there shall be no discrimination on the ground of race. This right
was guaranteed in section 32(c) of the transitional Constitution.
73 Ex parte Gauteng Provincial Legislature, In re: Dispute Concerning the
Constitutionality of Certain Provisions of the Gauteng School Education Bill of 1995
1996 (4) BCLR 537 (CC), 1996 (3) SA 165 (CC) at para. 45.
74 Ex parte Gauteng Provincial Legislature, In re: Dispute Concerning the
Constitutionality of Certain Provisions of the Gauteng School Education Bill of 1995
1996 (4) BCLR 537 (CC), 1996 (3) SA 165 (CC) at para. 50.
75 Ex parte Gauteng Provincial Legislature, In re: Dispute Concerning the
Constitutionality of Certain Provisions of the Gauteng School Education Bill of 1995
1996 (4) BCLR 537 (CC), 1996 (3) SA 165 (CC) at paras. 55–68.
76 2001 (7) BCLR 685 (CC), 2001 (3) SA 893 (CC).
77 Mohamed and Another v President of the RSA and Others 2001 (7) BCLR 685
(CC), 2001 (3) SA 893 (CC) at para. 68.
78 2004 BCLR 1009 (CC), 2005 (4) SA 235 (CC).
79 Azanian People’s Organization (AZAPO) and Others v President of the
Republic of South Africa and Others 1996 (6) BCLR 1015 (CC), 1996 (4) SA 672 (CC).
162 Globalization and private law
South African nationals, arrested and detained in Zimbabwe and then charged
with various offences related to their alleged complicity in a plot to overthrow
the government of Equatorial Guinea, sought the South African government’s
intervention on their behalf to secure their release or their extradition to South
Africa, and to protect them against assault and detention in atrocious condi-
tions while still in Zimbabwe (and the risk of a death penalty if eventually
extradited to Equatorial Guinea).
A majority of the Constitutional Court per Chaskalson CJ citing section 232
of the Constitution – thereby to signal reliance on customary international law
– construed the right to diplomatic protection of these South African nationals
on foreign soil, narrowly holding that ‘[t]raditionally, international law has
acknowledged that States have the right to protect their nationals beyond their
borders but are under no obligation to do so.’80 The court attached consider-
able weight to the opinion of a Special Rapporteur of the International Law
Commission on the meaning of ‘diplomatic protection’,81 concluding that
under current (customary) international law diplomatic protection is not recog-
nized and cannot be enforced as a human right. Diplomatic protection
remained the prerogative of the state, to be exercised at its discretion.82
80 Mohamed and Another v President of the RSA and Others 2001 (7) BCLR 685
(CC), 2001 (3) SA 893 (CC) at para. 23.
81 Kaunda and Others v President of the RSA and Others (2) 2004 BCLR 1009
(CC), 2005 (4) SA 235 (CC) at paras 25–8.
82 Kaunda and Others v President of the RSA and Others (2) 2004 BCLR 1009
(CC), 2005 (4) SA 235 (CC) at para. 29.
83 Du Plessis (2002, p. 173).
84 Erasmus (2003, pp. 157–81) at p. 175.
Transnational contextualization in South Africa 163
85 2000 (1) BCLR 86 (CC), 2000 (2) SA 245 (CC) at para. 13.
86 2004 (10) BCLR 1009 (CC), 2005 (4) SA 235 (CC) at para. 33.
87 Kaunda and Others v President of the RSA and Others (2) 2004 (10) BCLR
1009 (CC), 2005 (4) SA 235 (CC) at para. 33.
88 Du Plessis (2002, pp. 73–4).
89 Kaunda and Others v President of the RSA and Others (2)2004 (10) BCLR
1009 (CC), 2005 (4) SA 235 (CC) at para. 33.
90 Erasmus (2003, pp. 157–81) at p. 175.
164 Globalization and private law
96S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391
(CC), 1995 (2) SACR 1 (CC) at para. 16.
97 S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391
(CC), 1995 (2) SACR 1 (CC) at para. 16.
98 Peters (2007, pp. 251–308) at pp. 282–5.
166 Globalization and private law
well. Sachs J’s minority judgment in the Gauteng Schools case,110 which
considered the implications of self-determination for minority groups in a
crucial area, is a telling example of how political controversy can also prompt
a carefully crafted (and instructive) judgment. The Mohamed case, in its turn,
illustrated that adjudication with appreciable consequence beyond the bound-
aries of a domestic jurisdiction can afford a domestic court the opportunity to
convey – ‘for the world to know’ – what it intends doing to maintain, within
its area of jurisdiction, constitutional democracy in a manner earning it the co-
operation and, in time, also the respect of its peers in other jurisdictions.
There can be no doubt that it will often be helpful for our courts to consider the
approach of other jurisdictions to problems that may be similar to our own. Counsel
for the respondent argued that because our common-law principles of delict grew
from the system of Roman-Dutch law applied in Holland, a province of the
Netherlands, in the 17th century, we should not have regard to judgments or reason-
ing of other legal systems. He submitted that the conceptual nature of our law of
delict, based as it is on general principles of liability, is different from the casuistic
character of the law of torts in common-law countries. These differences, he submit-
ted, render reliance on such law dangerous. Counsel is correct in drawing our atten-
tion to the different conceptual bases of our law and other legal systems. As in all
exercises in legal comparativism, it is important to be astute not to equate legal
institutions which are not, in truth, comparable. Yet in my view, the approach of
other legal systems remains of relevance to us.
‘It would seem unduly parochial to consider that no guidance, whether positive
or negative, could be drawn from other legal systems’ grappling with issues similar
to those with which we are confronted. Consideration of the responses of other legal
systems may enlighten us in analysing our own law, and assist us in developing it
further. It is for this very reason that our Constitution contains an express provi-
sion authorizing courts to consider the law of other countries when interpreting the
Bill of Rights. It is clear that in looking to the jurisprudence of other countries, all
the dangers of shallow comparativism must be avoided. To forbid any comparative
review because of those risks, however, would be to deprive our legal system of
the benefits of the learning and wisdom to be found in other jurisdictions. Our
courts will look at other jurisdictions for enlightenment and assistance in develop-
ing our own law. The question of whether we will find assistance will depend on
whether the jurisprudence considered is of itself valuable and persuasive. If it is,
the courts and our law will benefit. If it is not, the courts will say so, and no harm
will be done.
The practice [the use of foreign law] remains a topic of fierce debate among schol-
ars … and among judges writing extra-judicially. It has been the subject of critical
comment in the press. It has attracted the attention of Congress, spawning a series
of proposed resolutions seeking, in one way or another, to discourage judicial refer-
ence to foreign constitutional experience, with impeachment a veiled threat in the
background.
115 Cf. South African Association of Personal Injury Lawyers v Heath and Others
2001 (1) BCLR 77 (CC) at para. 19.
116 Corder (1992, pp. 204–24) at pp. 206–14.
117 Ackermann (2005–06, pp. 169–93) at pp. 183–4. Cf. also S v Makwanyane
and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391, 1995 (2) SACR 1 (CC) at
para. 39.
118 Cf. e.g. Cheadle et al. (2006, p. 33-3) and also Markesinis and Fedtke
(2005–06, pp. 66–8).
119 1997 (7) BCLR 851 (CC), 1997 (3) SA 786 (CC) at para. 90.
120 Cheadle et al. (2006, p. 33-3).
121 Ackermann (2005–06, pp. 169–93); and cf. also Ackermann (2006, pp.
497–515).
122 And Ackermann (2005–06, pp. 11–167).
Transnational contextualization in South Africa 171
123 2001 (5) BCLR 449 (CC), 2001 (3) SA 409 (CC) at para. 133.
124 Ackermann (2005–06, pp. 169–93) at p. 186; cf. also Bernstein and Others v
Bester and Others NNO 1996 (2) SA 751 (CC), 1996 (4) BCLR 449 (CC) at paras
132–3.
125 For the concept ‘new constitutions’ cf. 2 above.
126 De Waal (1995, pp. 1–29); du Plessis (2005, pp. 1–30), http://www.puk.ac.za/
opencms/export/PUK/html/fakulteite/regte/per/issues/2005_1__Du_Plessis_art_tdp.
pdf; and du Plessis (2008, pp. 524–36).
127 Venter (2008, pp. 16–31).
128 1995 (6) BCLR 665 (CC), 1995 (3) SA 391, 1995 (2) SACR 1 (CC) at para.
39, cf. the introductory paragraph to 32.5(c)(v) above.
172 Globalization and private law
Further through the judgment Kriegler J sounded yet another word of caution,
namely that the advent of a new constitution did not warrant ‘the wholesale
importation of foreign doctrines and precedents’.130 With constitutional
democracy in South Africa in its infancy at the time, such caution was oppor-
tune, for the paucity of home-grown constitutional jurisprudence posed a
danger of overreliance on the jurisprudence of others or of reliance on inap-
propriate foreign sources.
Kriegler J’s word of caution coupled with the last sentence of his dictum
above raised the spectre of unreflective reliance on substantive foreign law,
regardless of the peculiar structural environment in which it occurs and/or the
distinctive procedural matrix in which it took shape. The Chaskalson P admo-
nition in S v Makwanyane and Another131 already suggested vigilance in this
regard and for the reasons mentioned.132 Mark Tushnet133 has, for instance,
shown why and how structural and procedural factors inhibit profitable
reliance by US courts and comparativists on much of the (exemplary) substan-
tive law on affirmative action in some other jurisdictions.
129 1996 (5) BCLR 658 (CC), 1996 (3) SA 850 (CC) at para. 127.
130 Du Plessis and Others v De Klerk and Another 1996 (5) BCLR 658 (CC),
1996 (3) SA 850 (CC) at para. 144.
131 1995 (6) BCLR 665 (CC), 1995 (3) SA 391, 1995 (2) SACR 1 (CC) at para.
39, cf. the introductory paragraph to 32.5(c)(v) above.
132 As Cheadle et al. (2006, p. 33-3) explain: ‘Great care must be taken to ground
comparative borrowing, both within the context of the texts from which that authority
emanates and as the nature and purpose of our text. For example, the absence of a
general limitation clause in the United States Constitution or the fact that the European
Convention on Human Rights is an instrument governing the conduct of national states,
has a considerable bearing on the nature of the jurisprudence of the United States
Supreme Court and the European Court of Human Rights. To borrow uncritically from
these jurisdictions, without considering the appropriate context, is an exercise fraught
with danger, a fact which was acknowledged by Chaskalson P in Makwanyane.’ Cf.
also Sanderson v Attorney-General, Eastern Cape 1997 (12) BCLR 1675 (CC), 1998
(2) SA 38 (CC) at para. 26.
133 Tushnet (2004, pp. 649–63).
Transnational contextualization in South Africa 173
134 2005 (9) BCLR 835 (CC), 2005 (6) SA 419 (CC) at paras 34–5.
135 K v Minister of Safety and Security 2005 (9) BCLR 835 (CC), 2005 (6) SA
419 (CC) at para 35.
136 Ackermann (2005–06, pp. 169–93) at pp. 187–90.
137 Bryde (2005–06, pp. 203–19) at pp. 207–8.
138 Bryde (2005–06, pp. 203–19) at pp. 213–19.
174 Globalization and private law
looked at. Even a foreign text misunderstood or taken out of context can,
according to Bryde, be inspirational. When foreign law is relied on as a legal
argument, however, a judge must get it right! Such an argument can draw on
foreign experience in the application of national standards, the application of
international standards in foreign (domestic) jurisdictions and transnational
constitutionalist principles limiting domestic constitutional law.
At the level of contemplation, where weighed (self-)reflection holds sway,
constitutional comparativism fulfils, according to Laurie W.H. Ackermann,
also speaking from practical experience, two vital functions. First, it can
feature prominently in identifying issues at hand in a given case.139 With
Albert Einstein, Ackermann believes that the formulation of a problem is often
more essential than its solution. Foreign law, precisely because it is not bind-
ing and therefore does not exert pressure ‘to be of effect’ as ordinary law,
creates room for ‘creative imagination’ and ‘to raise new questions, new possi-
bilities, [and] to regard old problems from a new angle’.140 At a critical stage
of judicial reasoning, namely where the judge has arrived at a preliminary
conclusion or hypothesis, reference to comparative examples assists him or
her in vital (and necessary) attempts to falsify such a conclusion or hypothe-
sis.141
Second, ‘the comparative legal approach’ is there for the judge to interro-
gate her or his own prejudices142 and to engage in a most crucial dialogue with
her or himself, in the course of which ‘hypotheses emerge, … intellectual,
cultural and other predispositions compete’ and ‘critical rationalism can come
into play to test and adapt hypotheses’:
This process started with the disappearance of the last right-wing dictatorships in
Southern Europe, was followed by the breakdown of communism in Eastern Europe
and has become a world-wide phenomenon most remarkably in Latin America but
also in Africa and Asia. While setbacks are common the overall process is signifi-
cant.148
required to construe the South African Constitution’, what are the criteria and
conditions that make interpretive reliance on comparative materials at all
possible and when are two systems of constitutional law (and/or aspects of
them) sufficiently compatible to be comparable for interpretive purposes?
How is a ‘wholesale importation of foreign doctrines and precedents’ to be
distinguished from prudent reliance on whatever (legitimate) instructive value
these doctrines and precedents might have?157 And is the debate about the
‘transplantation’ versus the ‘migration’ of foreign law relevant in the South
African context?158
As to the suggestion of Bryde159 about the distinction between the use of
foreign sources of law as inspiration and as legal argument, how is it to be
decided where the one ends and the other begins? Bryde maintains that for the
former mode of reliance ‘there are few normative or methodological require-
ments’ while for the latter mode ‘the methodology has to be more thorough’.160
Apart from suggesting that a thorough methodology entails ‘getting it right’ as far
as a judge’s understanding of relevant foreign law is concerned, Bryde is silent
on the essential difference between the two methodologies – and it will certainly
be worthwhile for constitutional comparativism as such to get that right!
Laurie W.H. Ackermann’s thoughtful account of his experiences as a judi-
cial comparativist161 opens possibilities for profitable scholarly enquiry. What
is inherent in constitutional comparison that, given the structure of judicial
reasoning, makes it helpful in identifying problems and issues, testing
hypotheses and interrogating (one’s own) prejudices? More down to earth: can
a theoretical account be given of patterns and trends in the manner in which
the Constitutional Court has so far relied on foreign materials in constitutional
interpretation? And has the fact that there are different methods (or ‘schools’)
of constitutional comparison162 at all shown in South African courts’ dealings
with foreign law in constitutional interpretation?
And finally, how do all the questions above relate to constitutional inter-
pretation and, in particular, the kind of constitutional comparison envisaged in
section 39(1)(b) of the Constitution and suggested by the written constitutional
text read as a whole?
1996 (3) SA 850 (CC) at paras 127 and 144; Sanderson v Attorney-General, Eastern
Cape 1997 (12) BCLR 1675 (CC), 1998 (2) SA 38 (CC) at para. 26.
157 Du Plessis and Others v De Klerk and Another 1996 (5) BCLR 658 (CC),
1996 (3) SA 850 (CC) at para. 144.
158 Cf. Choudhry (2006, pp. 1–36).
159 Bryde (2005–06, pp. 203–19) at pp. 213–19.
160 Bryde (2005–06, pp. 203–19) at p. 214.
161 Ackermann (2005–06, pp. 169–93).
162 Cf. in this regard Tushnet (2006, pp. 67–83).
178 Globalization and private law
5 GENERAL CONCLUSIONS
(i) Utilization of (and compliance with) international law, on the one hand, and
(ii) constitutional comparativism, on the other, erroneously conflated in the
jurisprudence of the Constitutional Court,163 are two distinct and active role
players on the big platform of globalization. As procedures of constitutional
(and, more particularly, human rights) interpretation, they are different modes
of access to a transnational legal and constitutional context, (i) more
pronouncedly from the perspective of norms and standards universally
accepted and upheld and (ii) as the realization of a readiness to learn from (the
world of) others both (and simultaneously) different from and similar to the
(world of the) self. Transnational contextualization may function as an anti-
dote to parochialism, but may not, in the process, be allowed to become an
exterminator of pluralism and diversity. The transnational perspective, apart
from drawing attention to what is universal, also facilitates recognition of what
is narrow but at the same time matchless in any particular constitutional and
human rights dispensation. Transnational contextualization is, in other words,
not just a way of taking universal factors into account and bringing macro
forces into play, but it must also honour uniqueness and aid its preservation
and promotion, and it is definitely not (and ought not to be perceived as) a
necessary panacea for each and every possible symptom of national
(self)interestedness. That transnational wisdom and expertise have to bend the
knee to narrow political pressure(s) is sometimes inevitable (as AZAPO164
showed), is always regrettable (as critics of AZAPO pointed out165), but in a
healthy constitutional democracy is hardly ever the end of the road (as the ebb
and flow of the Constitutional Court’s jurisprudence on the framework judg-
ment in Makwanyane166 showed167).
In any particular country the concretization of human rights law (with its
inherent values) entails participation in the dynamic and complex writing of
the bigger narrative of human rights in that country. This cannot be a grand or
master narrative, planned in advance (and in detail), and with an ever
predictable storyline. There are too many aberrations, inconsistencies and
imponderables involved. It is therefore also impossible to gauge, with any reli-
able precision at any given point in time, the specific ‘contribution’ of inter-
national and foreign law to that narrative. If the present chapter has as much
as indicated approximately how dynamic a force transnational contextualiza-
tion has become in the unfolding of the South African human rights narrative
and in human rights law since 1994 – a dearth of international- and compara-
tive-law skills and capacity among jurists notwithstanding – it may pass as a
worthwhile (albeit exploratory) perspective on the divide (and interaction)
between international, foreign and national law in an erstwhile pariah state
shut off from the dynamism of transnational realities on the platform of glob-
alization for too long.
REFERENCES
Cases
A M Moola Group Ltd and Others v Commissioner, South African Revenue Service
and Others 2003 (6) SA 244 (SCA).
Azanian People’s Organisation (AZAPO) and Others v President of the Republic of
South Africa and Others 1996 (8) BCLR 1015 (CC), 1996 (4) SA 672 (CC).
Bernstein and Others v Bester and Others NNO 1996 (2) SA 751 (CC), 1996 (4)
BCLR 449 (CC).
CC Maynard et alii v The Field Cornet of Pretoria (1894) 1 SAR 214 at 223.
Certification of the Amended Text of the Constitution of the Republic of South Africa,
1996, In re: Ex parte Chairperson of the Constitutional Assembly 1997 (1) BCLR
1 (CC), 1997 (2) SA 97 (CC).
Certification of the Constitution of the Republic of South Africa, 1996, In re: Ex parte
Chairperson of the Constitutional Assembly 1996 (10) BCLR 1253 (CC), 1996 (4)
SA 744 (CC).
Du Plessis and Others v De Klerk and Another 1996 (5) BCLR 658 (CC), 1996 (3)
SA 850 (CC).
Ex parte Gauteng Provincial Legislature. In re: Dispute Concerning the
Constitutionality of Certain Provisions of the Gauteng School Education Bill of
1995 1996 (4) BCLR 537 (CC), 1996 (3) SA 165 (CC).
Fose v Minister of Safety and Security 1997 (7) BCLR 851 (CC), 1997 (3) SA 786
(CC).
Government of the RSA and Others v Grootboom and Others 2000 (11) BCLR 1169
(CC), 2001 (1) SA 46 (CC).
K v Minister of Safety and Security 2005 (9) BCLR 835 (CC), 2005 (6) SA 419 (CC).
Kaunda and Others v President of the RSA and Others (2) 2004 BCLR 1009 (CC),
2005 (4) SA 235 (CC).
Mohamed and Another v President of the RSA and Others 2001 (7) BCLR 685 (CC),
2001 (3) SA 893 (CC).
S v Baloyi 2000 (1) BCLR 86 (CC), 2000 (2) SA 245 (CC).
S v Makwanyane and Another 1995 (6) BCLR 665 (CC), 1995 (3) SA 391, 1995 (2)
SACR 1 (CC).
180 Globalization and private law
Bibliography
1 INTRODUCTION
One central theme in the globalization1 debate is the changing nature of the
state.2 While debate rages within globalization literature about whether the
state has vanished, continues to exist only in hollowed-out form or remains a
dominant actor within the global picture,3 one thing is more or less accepted –
the state’s modus operandi is quite different from what it was a century ago.
In assessing the debate about the impact of globalization on the nation state,
Georg Sørensen concludes:
183
184 Globalization and private law
regulating the market. Thus the transformation that has taken place contains
elements of states both ‘losing’ and ‘winning’.4
4 Sørensen (2006, pp. 193–4). Also see in the same volume Flinders (2006, p.
224): ‘Neo-liberal attempts to “rollback” the boundaries of the state in a number of
advanced liberal democracies in response to a perceived crisis during the 1970s have
arguably led not to a reduction in the role, budget or powers of the state but to a rede-
finition, transformation or change in the structure of the state. There has been a change
in governing frameworks from hierarchical bureaucracies to complex networks and
markets: a shift from government to governance in which the extent of delegated
responsibilities and the role of private contractors has increased. Para-statals and P3s
represent instruments for meeting the obligations of the state and offer an infra-struc-
tural capacity for coping with crises and public demands’ (references omitted);
McCrudden (2007, p. 581); McGrew (1998, p. 299); Van der Westhuizen (2002, pp.
2–3).
5 See Flinders (2006, p. 223); Collins (1999, pp. 303, 305).
6 Sørensen (2004, pp. 34–8).
7 World Bank World Development Report (1997); Harrison (2004); Flinders
(2006, p. 230); Stiglitz (2003, p. 58); Bolton (2007, pp. 300, 303).
8 Marsh et al. (2006, p. 172); Goodin (2003, p. 69). See Bolton (2007, pp. 2–3).
9 See Bolton (2007, pp. 3–5).
10 See Goodin (2003, p. 69) who notes that ‘a nation tr[ies] to keep some of [its]
fundamental collective decisions safely sequestered from undue influence by others’
State commercial activity and administrative law 185
destiny it must increase its participation in commercial markets; that is, it must
increasingly play the market game.11 Increased state commercial activity can
thus be viewed as an attempt by the state to maintain competitiveness on the
global stage, but also on the domestic stage, where globalization has created
powerful rivals for the erstwhile sovereign and hence all-powerful state in the
form of multinational corporations and competing foreign state commercial
actors.12 Competitiveness in this sense is not simply a matter of getting ahead
– snatching investment away from competing players or extracting maximum
benefits from available resources – but indeed a matter of maintaining exist-
ing public goods in the face of competitors with the power to impose far-
reaching changes to the common (domestic) take on public life.
This transformation of state administration in the face of globalization
necessitates a reconsideration of the legal measures applicable to the state
against the background of such transformation. In short, there is a need to
consider the transformation of administrative law. In particular, the state’s
increased reliance on non-traditional forms of organization and conduct,
notably of a commercial nature, creates a need to carefully reconsider
administrative law as traditionally viewed at the core of public law.13 As one
political scientist notes:
The delegation of tasks [to para-statal bodies and private commercial entities by the
state] has largely been bereft of any coherent legal framework or even a broad state-
ment of principle. Functions have largely been delegated on an ad hoc basis, which
explains why the fringes of the state tend to be messy, confused and devoid of any
underpinning rationale or logic.14
and that ‘[t]hat capacity to do things differently, here from elsewhere, is precisely what
old-fashioned trade barriers used to buy us. And that is what is lost with the collapse of
those trade barriers and rampant globalization.’Along similar lines Hugh Collins notes:
‘[T]he shift towards contractualization in social life is perhaps one of the most potent
symbols of political and business culture at the close of the twentieth century’, Collins
(1999, p. 18).
11 See Koenig-Archibugi (2003, pp. 3–7).
12 Arthurs (2006, p. 55) notes that ‘the revenues of any of the top 100 or so
global firms exceed the GDP of many nations.’ Sørensen (2004, p. 4).
13 In Pharmaceutical Manufacturers Association of SA and Another: In re ex
parte President of the Republic of South Africa and Others 2000 (2) SA 674 (CC) at
para. 45, Chaskalson P formulates this traditional view as follows: ‘Whilst there is no
bright line between public and private law, administrative law, which forms the core of
public law, occupies a special place in our jurisprudence. It is an incident of the sepa-
ration of powers under which courts regulate and control the exercise of public power
by the other branches of government. It is built on constitutional principles which
define the authority of each branch of government, their inter-relationship and the
boundaries between them.’
14 Flinders (2006, p. 229).
186 Globalization and private law
15 See Botha (2009). This phrase comes from Ndebele (2003, p. 82) where the
last of the four imaginary South African descendants of Penelope waiting for their
husbands to return describes her attitude in preparing herself for the moment of
reunion: ‘To have an angle of approach rather than a plan. That will do. An approach
enables you to imagine yourself in a situation without its details. That should be
enough. Otherwise the details can chew away at your options.’
16 See Quinot (2007) Chapters 6 and 7.
17 See Marsh et al. (2006, p. 186); Koenig-Archibugi (2003, pp. 3–7).
State commercial activity and administrative law 187
3 APPLICABLE NORMS
Traditionally, in common law and civil law systems alike it seemed relatively
straightforward to fit state action into either commercial or governmental cate-
gories. When the state buys and sells it is acting commercially and its conduct
is simply subject to ordinary commercial law. When, on the other hand, the
state provides services to the public it is acting administratively and public law
applies. However, it has long been recognized that such an approach is
simplistic and does not align with reality.
As noted above, the marketization of all aspects of public life results in a
fusion of the governmental and the commercial. Today, the state has recourse
to a large array of tools in exercising its public powers and commercial action
features prominently amongst them. Peters and Pierre accordingly note that
‘the linear, autonomous conception of governing had been replaced by far
more complex arrangements for making and delivering policy’.19 These
complex institutional arrangements imply a much more complex legal land-
scape against which state action is to be understood.
Furthermore, the complex interaction between economic means and social
welfare ends has important implications for the legal treatment of the state.
The traditionally applicable norms of administrative law are conventionally
premised on much simpler relationships between state and citizen in the fulfil-
ment of public functions. The interaction between economic form and public
function hence calls for a careful reconsideration of the relationship within
legal doctrine between rules aimed at commercial conduct and public func-
tions respectively.
18 Koenig-Archibugi (2003, pp. 5–7) and Stiglitz (2003, p. 58); Sørensen (2006,
pp. 203–4).
19 Peters and Pierre (2006, p. 220).
188 Globalization and private law
25 Peters and Pierre (2006, pp. 210–11) argue that ‘while the emergence of insti-
tutionalized forms of concerted action between public and private actors was a novelty
to the British political milieu, it was certainly a familiar phenomenon both in (the rest
of) Europe and even in the United States’ but go on to note that ‘[e]ven so, however,
the British developments over the past couple of decades have been more profound and
have had bigger ramifications on the political system than in most other parts of the
world’ (references omitted). They continue to argue (p. 220) that in general ‘the linear,
autonomous conception of governing had been replaced by far more complex arrange-
ments for making and delivering policy.’
26 I am not simply referring here to the origin of the formal rules that govern the
legal relationships. I am more particularly thinking about the norms that govern the
specific transaction or relationship. The essential question is thus who is in control of
setting the rules or standards for this specific transaction.
27 Duncan Kennedy argues that ‘[i]ndividualism provides a justification for the
fundamental legal institution of … contract’ and that ‘[t]he essence of individualism is
the making of a sharp distinction between one’s interests and those of others, combined
with the belief that a preference in conduct for one’s own interests is legitimate … it
means a firm conviction that I am entitled to enjoy the benefits of my efforts without
an obligation to share or sacrifice them to the interests of others.’ In contrast, he iden-
tifies the ‘counterethic’ of altruism as ‘the belief that one ought not to indulge a sharp
preference for one’s own interest over those of others. Altruism enjoins us to make
sacrifices, to share, and to be merciful’, Kennedy (1976, pp. 1713–21); see also
Cockrell (1992, p. 40) for an application of Kennedy’s arguments to South African
contract law. Most recently, Deputy Chief Justice Moseneke described contract law as
follows: ‘The notion of contractual autonomy belongs to a larger worldview and
ideology. It flows from classical liberal notions of liberty and the neo liberal penchant
for free, self-regulating and self-correcting markets driven by individual entrepreneurs
who thrive on freedom of choice and freedom to strike handsome bargains. The law of
contract is meant to facilitate the securing of market needs. It is meant to be a value-
neutral set of muscular but predictable rules that curb uncertainty whilst inspiring
confidence in the market place’, Moseneke (2008), available at http://www.mymaties.
com/portal/page/portal/law/index.english/news/20081, accessed 14 November 2008
(hereafter ‘Moseneke Annual Public Lecture 2008’).
190 Globalization and private law
tender board.34 The power of the particular contracting organ of state to deter-
mine the structure of the relationship vis-à-vis the central authority adds
another layer of complexity to the particular transaction. Again, the individu-
alism of private law does not seem to be well suited to account for this
complexity. In state commercial transactions one may thus find two parties35
bound by terms that neither would have chosen freely.
Both the public interest in state commercial transactions and the public
power that is wielded when entering into and within such transactions neces-
sitate greater public involvement and scrutiny than would be the case in ana-
logous private transactions. Normal rules of commercial law do not provide
adequate measures to facilitate such public involvement in setting up the rela-
tionship.
From a normative point of view, the essential question is this: if, in the
words of Moseneke DCJ, ‘[t]he law of contract … is meant to be a value-
neutral set of muscular but predictable rules’,36 how can one ensure that the
normative values upon which the state is founded and which are hence meant
to be foundational to all state action as an important implication of constitu-
tional democracy37 are instilled in the state’s commercial conduct? If the
state’s commercial conduct was negligible, this question would have been
marginal or simply an academic obscurity – as it perhaps has been for a long
time. However, as I have argued, the forces of globalization are increasingly
compelling the state towards commercial forms of action. As a result, the
tension between commercial form and normative constitutional values is
mounting. Even if constitutional values could find their way into state
commercial transactions via private law structuring38 the globalization angle
raises questions about the particularity of such values.39 If any particular
state’s turn to commercial forms of action is a result of external pressures
34 For the position in South Africa see Quinot (2008b, p. 109); Bolton (2007, pp.
368–9) and internationally Arrowsmith et al. (2000, pp. 357–8).
35 Mostly, the contracting organ of state and the central authority that prescribed
the terms will be a single legal entity so that in a strict legal analysis the state (with all
its organs) constitutes the one party to the transaction, which obviously negates the
argument made here. However, I am referring to parties here in a more general and less
technical sense to denote the particular physical entities concluding the transaction, i.e.
focusing on the particular organ of state rather than the aggregate state.
36 Moseneke (2008).
37 In the South African context these values include accountability, responsive-
ness, openness, efficiency, transparency, Constitution of the Republic of South Africa,
1996 (hereafter ‘the Constitution’) ss 1, 33, 41, 195.
38 For different views on the possibility of introducing constitutional values into
private relations via private law see Lubbe (2004, p. 395); van der Walt (2005, p. 655)
and (2006, p. 1); Liebenberg (2008, p. 464).
39 Goodin (2003, p. 69).
192 Globalization and private law
From a conceptual point of view the increasing institutional hybridity poses questions
about the legitimacy and accountability of the state, particularly in light of the fact that
traditional understandings and procedures in relation to these concepts have histori-
cally been wedded to a state structure that to some extent no longer exists.43
4 ENFORCEMENT OF NORMS
When one turns from the substance of the applicable norms to their enforce-
ment in state commercial relationships one again encounters complexity. If
state commercial activity is viewed as private law based, enforcement of the
applicable norms largely rests in the hands of the parties to the transaction.44
It is left to the parties to monitor the counterparty’s compliance with the terms
of the regulatory system and, most importantly, to seek judicial intervention,
that is legal sanctions, in instances of non-compliance. Enforcement in the
regulatory system created by contract law is thus left to the discretion of the
particular parties to the transaction.45 Self-regulation in this respect is not
restricted to the choice to enforce the regulatory rules, but extends to the
manner of enforcement and largely the content of the legal sanctions invoked.
At the one end of the spectrum, a party can seek an order for specific perfor-
mance from a court to strictly enforce the rules of the agreed regulation, or, at
the other end, it can negotiate an amendment to the regulatory rules in the light
of the counterparty’s non-compliance with the original rules. Hugh Collins
describes this dimension of contract law as ‘an extreme example of responsive
or reflexive regulation’.46 Reflexivity is a highly desirable characteristic of
any regulatory regime. Reflexive regulation, in essence, attempts to be sensi-
tive to the expectations and realities of the particular parties to the regulated
social practice.47 The aim is to position the regulation vis-à-vis the communi-
ciation system(s) in terms of which the parties perceive the social practice in
such a way as to produce the desired regulatory outcomes without distorting,
diminishing or corrupting the social practice within such communication
system(s).48
The high measure of control by the parties over enforcement holds a
number of key advantages for the regulatory system.49 One major advantage
Starting with the paradigm that contractual practices are dominated by discourses of
economic interest, the general rules of contract law will always encounter difficulty
in achieving an adequate level of reflexivity when they encounter contractual prac-
tices which give priority to other frameworks of communication.54
Minister of Public Works and Land Affairs v Group Five Building Ltd 1999 (4) SA 12
(SCA) at 17. For discussions of the historical development of this doctrine in common
law see Atiyah (1979, pp. 412 et seq.) and in civil law Zimmermann (1992, pp. 5–6, 34
and 45).
60 Harlow and Rawlings (1997, p. 140); Freedland (1994, p. 99); Baxter (1984,
p. 58).
61 Mitchell (1954, pp. 236–7) notes that one of the specific results of the
development of a separate institution of administrative contract in France is that ‘the
rights of third parties are enlarged both as to claims as beneficiaries under the contract
and as persons interested in the operation of the administration.’
62 Collins (1999, p. 306).
63 There may of course be a happy coincidence between these two different sets
of purposes, e.g. seeking damages from an organ of state following corruption in a
tender process may result not only in the aggrieved applicant recuperating her wasted
costs, but also in fighting corruption in public administration and hence advancing
responsible, ethical governance. However, these overlapping purposes are merely coin-
cidental and there is no necessary link between them.
State commercial activity and administrative law 197
A public law remedies regime would certainly allow for much greater third
party involvement in the enforcement of norms.64 Furthermore, public law
remedies generally grant much more discretion to courts in fashioning appro-
priate orders.65 This flexibility enables courts to respond meaningfully to the
complexity involved in these cases and to tailor the enforcement of the applic-
able norms to achieve the desired regulatory outcome66 rather than simply
blindly enforcing rules found to be applicable. Public law causes of action also
align much closer to direct enforcement of normative constitutional values.67
the South African context are the values of dignity, equality and freedom, which are
recognized as foundational to South African constitutional democracy in ss 1, 36 and
195, but which are also guaranteed as justiciable rights in ss 9, 10 and 12 of the Bill of
Rights. On the role of these values in constitutional adjudication see Transnet Ltd v
Chirwa 2007 (1) BLLR 10 (SCA) at para. 16; Minister of Home Affairs v National
Institute for Crime Prevention and the Re-Integration of Offenders (NICRO) & Others
2005 (3) SA 280 (CC) at para. 21; Bhe & Others v Magistrate, Khayelitsha & Others
2005 (1) SA 580 (CC) at para. 50; De Reuck v Director of Public Prosecutions
(Witwatersrand Local Division) 2004 (1) SA 406 (CC) at para. 62.
68 Steenkamp NO v Provincial Tender Board, Eastern Cape 2007 (3) SA 121
(CC) at para. 21.
69 Quinot (2007, pp. 426–33).
70 Teubner (1988, p. 306) notes that in the regulatory crisis experienced in the
modern welfare state: ‘State interventionist law is supposed to be one of the main
obstacles to reaching the goal of allocative efficiency’; Khoza and Adam (2005, p. 95);
Davies (2006b, pp. 99 and 114) (noting the potential increased price implications of
applying strict public law regulation to state contracting).
71 Quinot (2007, pp. 426–8).
72 Judicial review proceedings, especially in a commercial context such as
public tenders, are often preceded by applications for interim relief to freeze the rele-
vant administrative action pending the outcome of the review. On the impact of interim
relief under EC procurement rules applied in English law, see Arrowsmith (1992b, pp.
100–101, 111–14). She argues that inconvenience to either the public or administration
because of the delay in execution of government functions caused by judicial review
proceedings may be a factor motivating courts to deny interim or final relief and that
English case law seems to suggest that such factor will weigh heavily against interim
relief in public procurement cases. A similar approach seems to emerge from recent
South African judgments, particularly regarding interim relief. In Digital Horizons
(Pty) Ltd v SA Broadcasting Corporation and Another (unreported, High Court of
South Africa, Witwatersrand Local Division, case no 2008/19224, 8 September 2008),
State commercial activity and administrative law 199
for example, the court refused interim relief pending judicial review of a public tender
award despite strong evidence that the relevant tender process was reviewable. In
refusing the interim relief Malan J notes at paras 28–29: ‘The public obviously has an
interest in the outcome of this application: a failure by the first respondent to comply
with its FIFA obligations will not only be embarrassing but also affect international
perceptions of the first respondent as a national broadcaster … The risk in this matter
is concerned with the first respondent’s ability to comply with its FIFA obligations
should the interim relief be granted. To my mind the respondents have shown that this
consideration outweighs the applicant’s right to administrative justice. It would, more-
over, not serve the public good if the interim relief sought is given and in the circum-
stances not be “just and equitable”.’
73 It is of interest to note that the EC Directive 89/665, which contains the reme-
dies for the enforcement of EC public procurement rules, expressly provides in art 2(3)
that review proceedings need not have an automatic suspensive effect and in art 2(4)
that interim measures may be denied when the negative consequences outweigh the
benefits, Arrowsmith (2006b, p. 376).
74 Following the judgment in Steenkamp NO v Provincial Tender Board, Eastern
Cape 2007 (3) SA 121 (CC), the (even abstract) possibility of a review application
succeeding has now seemingly resulted in a general standstill period following the
award of public tenders in South African law, during which time the parties to the
public contract proceed with performance under the contract at their own risk should
the contract subsequently be set aside. In his majority judgment, Moseneke DCJ held
at para. 52: ‘Even where there is a delay [in bringing review proceedings of a public
tender award] and a court nonetheless set aside a tender award, I do not accept that
ordinarily a prudent and diligent successful tenderer whose award is reversed later is
without remedy. He or she too may not leap without looking.’ The minority expressly
rejected this argument, stating at para. 83 that ‘it would be an undesirable consequence
for the performance of government contracts, were successful tenderers to be anxiously
looking over their shoulders in case their contract should subsequently be declared
void. Moseneke DCJ impliedly criticises the applicant (it “should have curbed its
commercial enthusiasm”) for being quick off the starting blocks in seeking to perform
its contractual obligations. We cannot agree. In our view, it would be highly
undesirable to suggest that a successful tender applicant should hesitate before
performing in terms of the contract, in case a challenge to the tender award is success-
fully brought. Such a principle, in our view, would undermine the constitutional
commitments to efficiency and the need for delivery which are of immense importance
200 Globalization and private law
to both government and citizens alike’ (footnotes omitted). Also see Quinot (2008b, pp.
111–14) where I argue that the adverse impact on the state is not restricted to a delay
in performance under government contracts, but that there are also significant cost
implications for state commercial activity following the approach taken in the
Steenkamp judgment.
75 Note, for example, the debate in arbitration circles about what law to apply in
such instances, particularly whether it is only the relevant state’s own administrative
and/or constitutional law that should be applied or whether international law and/or
principles should also find application, see Bühler and Webster (2005, p. 111). For a
comprehensive analysis of this dilemma in international investment arbitration, see
Choudhury (2008, p. 775).
76 An interesting development in international commercial arbitration that
clearly highlights this defect in traditional arbitration practices is the recent amendment
of the rules under the Convention on the Settlement of Investment Disputes Between
States and Nationals of Other States (ICSID) to provide for third party briefs in arbi-
tration proceedings, even without the consent of the primary parties, Choudhury (2008,
pp. 816–18). Also see De Feyter (2007b, pp. 87–9).
77 It is acknowledged in common and civil law systems alike that the state gen-
erally has the power to enter into international commercial arbitration agreements and
bind itself thus to norm enforcement by means of international arbitration; see Weigand
(2002) Part 4 for accounts of the approach in 10 different legal systems; Sutton and Gill
(2003, p. 89); Bühler and Webster (2005, p. 107). It is noteworthy that a number of
systems take a more liberal approach to organs of states’ capacity to enter into interna-
tional arbitration agreements in comparison with domestic arbitration. France is a good
example, where art. 2060 of the French Civil Code, which restricts public entities’
capacity to enter into domestic arbitration, has been held not to apply to international
arbitration agreements, see Gaillard and Edestein (2001, p. 648). However, it is not
always clear in the context of state commercial activity that a dispute is a commercial
one and is thus properly subject to commercial arbitration i.e. that the decision to which
the dispute relates is arbitrable. See Bühler and Webster (2005, p. 110 fn 148) where it
is noted that some states that used to argue that public entities are not able to enter into
(international) arbitration agreements now rather argue that the issues are not arbitra-
ble. Also see Bühler and Webster (2005, p. 111). A state party may for example refuse
to perform under a contract claiming that such performance will unlawfully fetter its
executive discretion to act in the public interest. Whether an assessment of this argu-
ment is a commercial question is open to doubt. Even if such a dispute is a commercial
one under a broad interpretation of commercial matters – see e.g. the definition of
‘commercial’ in the UNCITRAL Model Law on International Commercial Arbitration
in Redfern and Hunter (1999, pp. 1–28) – questions remain about whether it is appro-
priate or desirable to have international arbitrators decide on what public interest
demands on executive discretion are.
State commercial activity and administrative law 201
78 See Baxter (1984, pp. 62–3); Hoexter (2007, pp. 149–50); Seddon (2004, pp.
18–19; 38 and 325); Cockrell (1993, p. 227); Aronson (1997, pp. 52 et seq.); Cane
(2003, p. 248).
79 Turpin (1972, pp. 99-100); Davies (2006a, p. 113; 2006b, 122; 2001, pp.
198–207).
202 Globalization and private law
6 CONCLUSION
In summary, state use of commercial action raises two distinct concerns for
administrative law.
Firstly, increased levels of state commercial activity can be viewed as
attempts by the state to recapture some of its power, which in its traditional
political form is shrinking in favour of economic or market power – the state
thus tries to gain market power. To the extent that administrative law is tradi-
tionally interested in control of political power and is not really geared to
check economic power, administrative law will have to transform to pay much
closer attention to economic form and power if it wants to continue its func-
tion of legally steering state power or exercises of public power.
Secondly, traditional forms of administrative law, especially but not exclu-
sively in common law systems, are simply not adequate to facilitate state
participation in the market. Other, more commercial, forms will have to be
developed or internalized within the administrative law framework if admini-
strative law wants to remain relevant in structuring state action.
The question in substantive law is thus how to structure the legal framework
for state commercial activity in a way that facilitates the social reality of this
phenomenon without distorting it; that is, a question of reflexive regulation. If
the framework is an administrative law one, the administrator is in control of
the relationship premised on public instruments of authorization and enforce-
ment, which implies high levels of public involvement. If the framework is a
private law one, the parties to the transaction are in control of the relationship
on a notionally more or less level playing field to the exclusion of all others.
The latter framework enables the parties to optimize their respective interests
through the transaction; that is, a transaction will only occur on the terms that
serve the interests of the parties to the transaction. The problem for the state is
that it needs to adopt this latter framework if it wants to effectively compete
in the (global) market, but in doing so it necessarily denies the complexity of
its conduct and thereby undermines the possiblity for truly reflexive regula-
tion.
When I read the literature on the legal control of public procurement I often
get the sense that the field is simply viewed as one of technicalities. Typical
questions are: How is an organ of state to go about identifying the preferred
bidders in a public tender process? To what level must the tender specifica-
tions be detailed in the bidding documents? What scope is there for post-tender
negotiations? What procedure must be adopted vis-à-vis all tenderers follow-
ing an award decision? This loses sight of the fact that the legal control of
public procurement (and state commercial activity more generally) can
provide us with important insights at much more general levels – such as to
the legal nature of the state and its relationships, the role of judges in both
controlling and facilitating state action, how to deal with multiple perspectives
on and interests in a single legal action, how the various parts of the puzzle
that make up the legal system – both in relation to substantive areas of law and
institutional actors – relate to each other, and eventually also the relationship
of law and social practice. I think that theoretical analysis of the legal take on
state commercial activity can be of tremendous value in starting to think about
some of these issues.
As Matthew Flinders notes: ‘It may well be … that the boundaries of the
state may offer valuable new civic governance arrangements in which
members of the public can be reconnected to the public realm, no matter what
type of institution delivers the service.’84 I think the area of state commercial
activity, existing at the boundaries of the traditional state, offers us an inter-
esting context to explore the responses of our legal systems to the complexity
of our social reality.
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PART IV
Corporate governance
8. Globalization: selected developments
in corporate law
Bas Steins Bisschop*
1 INTRODUCTION
The present globalization is largely based on the past. This is particularly true
in the corporate world, where corporations are engaged in business on a global
scale whilst maintaining their national and traditional organizational form.
Concentrating on the organizational form of doing business it is remarkable to
note that, notwithstanding the general and systematic differences in national
jurisdictions, in respect of the corporate organization and governance of the
national corporations the commonalities are more manifest than the differ-
ences. In this chapter we will review these commonalities. The corporate orga-
nization may have appeared to be insufficient to face globalized crises such as
the current credit crunch, which has led from a US financial problem to a
global economic crisis. Nevertheless, there seems to be no reason to funda-
mentally amend or change this more or less common form of corporate orga-
nization in order to prevent the reoccurrence of similar crises. At the end of
this chapter we will cautiously explore whether the South African transition
from apartheid to a modern democracy presents lessons learned that can be of
use in resolving global crises.
In Section 2 we will discuss the historical foundation of the corporate orga-
nization which can be traced back to the Netherlands in 1602. In that year the
Dutch invented a corporate system in which the entrepreneurial activities were
separated from the financing of the enterprise. The provision of capital served
to finance the business of the corporation without the investors being fully
exposed to the commercial risks incurred by the corporation. The investors
became shareholders providing capital to the corporation, enjoying limited
liability, but at the same time having the benefit of sharing in the profits and
wealth of the corporation.
* Prof. Dr. Bas T.M. Steins Bisschop is professor of corporate law and corpo-
rate governance at the universities of Maastricht and Nyenrode and a solicitor in The
Hague.
211
212 Globalization and private law
Even before the foundation of the VOC, people in several countries had
thought about how to spread the risks of business activities. In the late
sixteenth century, the Amsterdam merchants had to acknowledge that the
extremely lucrative trade in goods from the East was dominated by others.
Holland and Amsterdam had no trading post of their own on the trade routes,
and they had to depend on others who did, such as the Portuguese who
defended their trading interests well with the support of their government.2
The geopolitical relations of the time, including the fact that the Netherlands
was at war with Spain, made it impossible to acquire independent international
concessions for undertaking (protected) expeditions. Amsterdam was forced to
restrict itself to the role of mere intermediary, without access to the large prof-
its being made with the import of goods, especially spices. The Amsterdam
administrators then decided to end the situation, and ultimately to create a
double monopoly. They wanted both international domination of the trade in
spices from the East and Amsterdam to be the definitive European trading city.
Achieving these objectives necessitated sailing and securing the trade routes.
For this purpose in 1602 a company was formed which obtained a patent
from the Republic giving the mandate for a trading monopoly for the East. The
Republic provided constitutional protection to guard the national interest
embodied in the Republic’s trading interests. The corporate interest would
therefore appear to coincide with the national interest in a certain sense. The
major initiators of the VOC were the merchants, in particular those from
Amsterdam, rather than the Republic or the individual States.
A novelty, at any rate in the Republic, was that a general appeal was made
to the public for funding. Financial participation rights called actiën were
issued to the participants. The name actiën is derived from the expected enti-
tlement (action) to dividend and the prospect that the capital could be recov-
ered after lapse of the originally intended investment period of ten years.3 The
actiën were later redefined to become more tradable. The trade that followed
was lively.
The VOC was not a partnership of investors, traders or businessmen, but an
independent entity with legal personality. The VOC therefore participated
independently in commercial life and pursued its own interests and not primar-
ily the interests of its financiers. These own interests included (the total of) the
interests of those involved in the legal entity, which we today would refer to
as stakeholders, as well as the interest in the continuity of the business oper-
ated by the legal entity founded for the long term.
An important part of the VOC’s social and financial success can be attributed
to the chosen new legal structure with its capital supply from somewhat arbi-
trary participants distinct from those who conducted the corporate business.
The VOC’s corporate model was based on a separation between the functions
of business and undertaking on the one hand and financing on the other hand.
This separation resulted in a division of powers, rights, interests and entitle-
ments. From the VOC’s viewpoint, the supply of share capital by the partici-
pants meant it could permanently use the capital acquired to finance the
enterprise, not through loan capital but by using it without any repayment
obligation. The enterprise had the capital at its almost free disposal as the capi-
tal contributors, the investing shareholders, had no right to call or reclaim their
capital contribution. However, from the investors’ viewpoint, this capital
supply would not lead to a lasting loss of liquidity (up to the amount of the
capital contribution), because the shares in the VOC could be sold without the
VOC being involved. This structure, with this form of financing, therefore
resulted in permanent liquidity for both the VOC and the investor. American
literature refers to this as an ‘act of magic’.4
The way in which the VOC was financed through the contribution of share
capital strongly resembles the way in which the modern corporation is
financed.
Although the shareholders have no right to reclaim their investment from the
corporation, they have the right to control their investment through essential
shareholders’ rights. The nature of these rights and how they can or may be
exercised are the quintessence of shareholdership and of the debate on the
subject both now and at the time of the VOC. The current corporate gover-
nance debate and its counterpart in the early decades of the seventeenth
century are both concerned with the desirable corporate legal structure, which
is based on a dualistic system in which the board is charged with the manage-
ment of the company and the investors monitor the company’s performance
through the exercise of their controlling rights.
The shareholders’ rights are exercised in the context of the organizational
form of the enterprise. It is interesting to note that the organizational form of
the VOC does not fundamentally differ from the form adopted by contempo-
rary firms. As did the VOC from 1602, the modern corporation may be consid-
ered to have characteristic features, which are described in a comparative
review of the corporate form in certain jurisdictions.5 These features are legal
personality, limited liability, delegated management under a board structure,
transferable shares and investor ownership. Of these, only legal personality
requires intervention by the legislator, who must specifically provide for the
award of this status to corporations. The other features are generally also
covered in national legislation, but in theory they could also be contracted
between the corporation and the relevant party with whom the corporation is
engaged in business. In respect of these elements the law serves as a default
system on which the parties may rely but from which they may also deviate.
Legal personality allows a firm to conduct business in its own name and at
its own risk and on its own account. The statutory privilege of legal personal-
ity permits the firm not only to engage in business independently from its
shareholders but also to have and own assets and incur liabilities.
Limited liability therefore is the complementary characteristic of legal
personality. In the corporate organization, the providers of capital, the share-
holders, and those who are responsible for the usage thereof, the board, have
the advantage of not being liable for the debts incurred by the corporation in
its own name.
Delegated management under a board structure is closely connected to the
previous characteristics, as the independence of the corporation is the result of
the shareholders having ceased to conduct business themselves and having
delegated doing business – and therefore incurring risks – to the legal person,
and of the fact that the shareholders have not delegated unconditionally but
have secured control through the functioning of a board.
Transferable shares are required to maintain the separation between the
corporation and its shareholders. In Section 2.2 of this chapter we referred to
the almost magical function of the capital contributions by shareholders, as
this form of financing results in permanent liquidity for both the corporation
and the investing shareholder. The corporation may use the contributed capi-
tal. The contributing shareholder, however, does not lose but maintains liquid-
ity in about the amount of the contribution. The maintenance of the liquidity
of the capital contribution is dependent on the tradability of the shares. In
public companies such liquidity is maximized. In joint venture companies the
liquidity is almost absent.
Investor ownership is a somewhat misleading term. ‘Ownership’ is an
absolute right to administer and dispose of the object of ownership. It is clear
that shareholders have no such rights in respect of a corporation, let alone its
assets. The term ‘ownership’ is a remnant of the times before the separation of
financing and managing and should be translated into the term ‘control’. The
main control powers, and therefore the essential decision rights of the general
shareholders meeting, are the powers to appoint and dismiss management
(including the power to instruct management), to adopt the annual accounts
(including the profit and the profit distribution), to decide on any matter
concerning the capital of the corporation (including issuance and redemption
of shares and decrease of capital), and finally, to determine ‘the rules of the
game’ (including amending the articles of association or the corporate statute
and the decision to liquidate the corporation). In almost all jurisdictions under
review, corporate law provides that these are exclusive rights of the general
shareholders meeting.
2.4 Conclusion
The foundation of the VOC was inspired primarily by the strategic economic
considerations of its founders. Other motives had to do with trade policy. The
interests of the founders, the later shareholders, were therefore paramount.
However, the initial focus on making profit from the trade with the East gave
rise to other and broader objectives, resembling the objectives of present
multinational corporations. During the life of the VOC, the investors’ control
function was strengthened following incidents similar to today’s bookkeeping
and other corporate ‘scandals’. The VOC was also oriented to continuity, so as
to serve the interests of the participants and the public interest. This then also
implied that the interests of a much wider circle of parties involved in the
success of the VOC had a strategic influence on the decisions of the VOC.
The history of the VOC ended almost two centuries after its incorporation,
Selected developments in corporate law 217
in the period 1795–98, for commercial and political reasons which foreshad-
owed today’s commercial and political situation, including short-term specu-
lation, over-leveraging of equity capital, over-valuation of assets, lack of
supervision by the investors, uncontrolled agency problems, inefficiency on
the part of the supervising governmental authorities and so on.6
The end of the VOC, however, did not mark the end of the corporate form
invented by its founders. The five characteristic features described above in
Section 2.3 have continued to exist in the modern corporations of the jurisdic-
tions inspected in the comparative review,7 namely the USA, the UK,
Germany, France, Italy and Japan.
These countries represented the major players in the international and
global economy until recently. In this comparative survey we also include the
emerging economies of the BRIC countries, Brazil, Russia, India and China in
order to establish whether or not there is a fairly global form of corporate orga-
nization taken by modern corporations.
3.1 Brazil
The financial crisis of the beginning of the twenty-first century, which has
expanded into a global financial and economic crisis, also severely hits the
developing countries including Brazil. The Brazilian government has taken
action in order to protect the national interests and has among many other
initiatives asserted that Brazil refuses to be ‘mere coffee drinkers’ on the side-
lines of the richer nations’ meetings.8 Brazil actively engages in initiatives to
restructure organizations such as the International Monetary Fund and the
World Bank to give the developing nations more of a voice in decision-
making. Emerging economies such as Brazil have suffered during the crisis as
a result of falling commodity prices and their dependence on exporting these
commodities. It is in the interest of Brazil not to be victimized by import
reductions and trade protectionism employed by rich countries to overcome
their own national crises. The severity of Brazil’s problems is a test of the
tenability of its corporate system.
3.2 Russia
The global crisis of the present times has hit the republic of Russia perhaps
even more. In the early 1990s, Russia terminated abruptly the then existing
form of doing business through state-controlled entities without private
ownership. This change was effected by mass privatization which began
shortly after the raising of the Iron Curtain and the fall of the Berlin Wall in
1989. The privatization took the form of distributing to Russian citizens so-
called ‘vouchers’ which reflected ownership rights in the former state enter-
prises. These vouchers were distributed in the privatization framework and
entitled the holder to proportional ownership rights in the privatized entities.
Those entities were formed as capital corporations resembling the Anglo-
American style corporation.11 The privatization attempted to create a corpo-
rate system with dispersed shareholding, so shifting state ownership into
popular ownership.
The inevitable conclusion must be, however, that this attempt has failed.
Instead of widespread ownership the shares in the privatized corporations’
ownership passed to the hands of oligarchs who engaged in egregious self-
dealing, enriching themselves into unheard-of wealth. The oligarchs became
‘kleptocrats’ and the government did little or nothing to control matters but
allowed corruption, unfair practices, bank and government defaults on both
dollar and ruble denominated debt and large-scale tax fraud. Russia’s wealth
in terms of commodities, and especially oil, allowed the system to continue
from the start of the privatization until the credit crunch, as a result of which
Russia was battered by the combined effects of the fall of the oil price, the
depreciation of the ruble, and the unavailability of credit.
This is a very brief summary of events that are widely described in the liter-
ature, of which only a part is used in the present research, as our main focus
here is not on the developments in Russia after the credit crunch but on the
analysis of Russia’s system of corporate law and on the question of whether or
not corporations in Russia have the same or similar characteristics as the
corporations existing in the jurisdictions which formed the subject of the
comparative research mentioned above.
The corporate legislation in Russia aimed to follow the European system
and in particular the German model.12 The resulting corporate structure for
open and closed joint-stock corporations and for closed limited liability corpo-
rations exhibits the aforementioned characteristics,13 but the nature of the
Russian companies differs markedly from the nature of the European corpora-
tions, largely due to the circumstances just mentioned and because of the
undeveloped stock market, a weak banking sector and financial services indus-
try and state interference resulting from expanded regulatory authority.14
3.3 India
The public limited company is the main business form in India and ownership
is predominantly in the hands of corporates, wealthy families and – increas-
ingly – institutional investors.15 The legal system introduced in India on the
occasion of India becoming an independent nation in 1947 to a large extent
consisted of a common law system inherited from the British. In the period
until the reforms in 1991 the government implemented an agenda of measures
which could be qualified as ‘socialist’.16 In 1991 liberalization occurred,
replacing the tight regulatory framework for corporations and central planning
policies by freedom of corporations to manage their own affairs. The corpo-
rate environment, including the securities market, was modernized to facilitate
the emergence of India as a major player on the global market. Additionally,
the Confederation of Indian Industry (CII) published a brochure with the title
3.4 China
Of the emerging economies discussed in this chapter China is the largest. The
developments in China during the last decades have been exceptional and
should also be seen against the background of the ancient history of the coun-
try. Prior to modern times China was undisputedly a, if not the, global leading
economy. This position was lost in the course of the seventeenth century and
China lagged behind the Western world and did not participate in the industri-
alization process. It maintained a feudal system and agricultural rather than
industrial considerations dominated the national policies. In the period from
the beginning of the twentieth century until 1949 the modernization of the
Chinese model included the establishment of Chinese corporations and the
launching of a Company Law in 1904. After the transition of power to the
17 Kumar in his foreword for the Confederation of Indian Industry (1998, p. 1).
18 Mallin (2004, p. 198).
19 Panagariya (2009).
Selected developments in corporate law 221
communist party in 1949 the economy changed into a planned economy with
no room for private ownership or other features of the market economy. There
were nationalizations and generally enterprises were state owned and the
economic activity took place in a planned economy dominated by the state.
Gradually and in line with the developments in other socialist countries, the
notion of underperformance, inefficiencies and economic stagnation resulted
in a gradual change toward a market economy as from the late 1970s. It was
only in the late 1990s that the changes were expedited by a reform of state-
owned enterprises into corporations which adopted a more or less Western
style. This coincided with law making, the creation of stock exchanges and
widespread corporatization.
Notwithstanding these developments the State continued to be the owner of
the (shares in the) corporation, hindering efficiency and creating conflicts of
interest at shareholder and managerial levels. These effects were challenged
by introducing modern corporate governance mechanisms without however
departing from the concept of a major if not dominant role of the State. The
path dependency of the developments in China dictated gradual steps and
adaptation in implementing these corporate governance measures whereby the
Japanese and German models were seen as a yardstick.20
There are, however, recent developments and structural changes to the
Chinese economy which have accelerated since WTO accession in 2001.
Competition has increased, government policy is favouring and facilitating
industry by easing regulation, whilst the programme of privatization of state-
owned enterprises continues. In China, a new Anti-Monopoly Law took effect
on 1 August 2008. It is based on various European models and that of the
United States. However, there are some Chinese characteristics that evidence
the important socialist heritage of China’s largely market economy. Article 4,
for example, provides that ‘the State formulates and implements competition
rules compatible with the socialist economy, strengthens and perfects macro
regulation and control, and completes a unified, open, competitive and orderly
market system.’21 The new law is likely to be a valuable tool and protection
for multinationals as well as domestic companies to ensure healthy competi-
tion in the Chinese market.
The conclusion in respect of China is therefore that the corporate law
system is based on the country’s own history. The dominant role of the state
continues although it is diminishing. There is increased acceptance of corpo-
rate governance concepts which are not uncommon in the jurisdictions
initially reviewed. There are marked differences22 between China and these
jurisdictions and the other BRIC countries, but convergence23 of the Chinese
corporate practice towards the common elements of the corporate systems of
these jurisdictions and the other BRIC countries is visible.
3.5 Conclusion
22 Olaerts states that ‘Although Chinese Company Law has recently been
revised and now contains provisions which can be found in most other jurisdictions, it
is unique in its compilation’, Olaerts (2009).
23 See Wang (2008).
Selected developments in corporate law 223
found the question arises as to whether the models will continue to exist sepa-
rately or are likely to develop in such a manner that the differences become
less relevant and that the systems converge and exhibit the same or similar
characteristics.
As mentioned above, the shareholder model places less emphasis on the
characteristic element of legal personality and regards the firm as a means in
the hands of shareholders to optimize their value proposition. The model is
based on the concept that business activity is to be conducted through the firm
if this is economically beneficial to its shareholders. The business activities
should not be organized in the form of a firm when the production of goods
and services can be achieved at lower costs through direct contracting between
the customer and the various producers. When the costs to contract in the open
market for the production of these goods and services, the transaction costs,
exceed the costs when the production is internally organized through the inter-
position of the firm, it is economically efficient to conduct business through
the firm.28 These Coasian attributes of the firm explain the focus on share-
holder value as the paramount and ultimate beneficiary of the business activ-
ity which still survives in the present economic thinking.
A proponent of the shareholder value model is found in Milton Friedman in
his famous article in the New York Times in 1970 stating that the responsibil-
ity of business is to make profit and that the social responsibility of business
is to increase profit for the benefit of shareholders as owners of the business.29
Other advocates of the supremacy of the shareholder model are Hansmann and
Kraakman, who speak of the ‘triumph of the shareholder-oriented model of the
corporation’ on the basis of primarily legal arguments.30 On the basis of
primarily economic arguments Jensen holds that the debate over shareholder
value maximization versus stakeholder interest ‘is often falsely framed as
stockholders versus stakeholders’ and that the real debate is about the question
of whether the firm should have a ‘single-valued objective’.31 On the basis of
the example that it is logically not possible to serve both the goal of maximiz-
ing profit and increasing market share he concludes that managers cannot
serve two masters in the form of shareholders and stakeholders. He rejects in
strong words the stakeholder theory and maintains that any expenditure by the
firm should meet the condition that long-term value is added to the firm to the
benefit of the shareholders.
On the other side of the debate there are arguments that validly question
the theory of shareholder primacy. A representative from the Anglo-Saxon
Prima facie, this newly introduced provision seems to indicate that British
corporate law adopts the stakeholder model. This conclusion, however, should
be nuanced.
In the first place, the common law tradition dictates a duty of the directors
to act in the best interests of the company, whereby the term ‘company’ should
be put on the same footing as ‘members’ or ‘shareholders’. This dominant
position of the shareholders’ interests has not been negated by the amendments
to s. 172(1). The reference to the stakeholders’ interests set out in paragraphs
a–f of this section serves as a guideline for directors to determine whether they
adequately discharge their duties, which are now defined to be to promote the
success of the company.
In the second place, the duty ‘to promote the success of the company for
the benefit of its members as a whole’ confirms the primacy of the sharehold-
ers, although there seems to be an underlying assumption that the six elements
to be considered are elements that strategically or in fact contribute to share-
holders’ interests when duly taken into account by the board.
In the third place, it should be recognized that not the stakeholders but only
the company, and in exceptional cases also the shareholders by derivative
action, can enforce the obligations of s. 172(1). The stakeholders whose inter-
ests are being protected by this clause have no action. This could be different,
for example, in the case of a bankruptcy where the interests of the creditors
have been neglected in violation of s. 172(1). Whether or not the new provi-
sions in the Companies Act will allow actions against directors instituted by
the company, derivative actions by shareholders or actions on behalf of credi-
tors by the receiver in bankruptcy to be successful is a matter to be decided by
the courts.34 The courts will of course rely on the existing body of case law on
the common law duty of the directors to act ‘in the best interest of the
company’ and they will also note that decisions referred to s. 172(1) are
commercial decisions which are the domain of the directors who have a wide
discretion to decide what will promote the success of the company as long as
they act in good faith and not manifestly unreasonably.35
The duty of the directors to act in the best interests of the company has been
replaced by the duty ‘to promote the success of the company for the benefit of
its members as a whole’. The term ‘success’ is not defined in the Act but
should be interpreted to mean that a commercial transaction by the company,
represented by its board, should contribute to the long-term increase in the
value of the company. On the one hand, the almost unlimited discretion of the
directors will make it difficult to directly enforce stakeholders’ interests on the
basis of s. 172. On the other hand, a director actively promoting the interests
of certain or all of the stakeholders mentioned cannot easily be held liable by
the shareholders stating that a different strategy would result in better finan-
cial results. It is perhaps too early to conclude that UK law has adopted the
stakeholder model, but it would also seem incorrect to state that the share-
holder model has survived unimpaired by the introduction of the concept of
enlightened shareholder value.
The container term ‘corporate interest’ reflects the criterion that is to serve as
a yardstick for the board, and for the other corporate bodies, to determine their
rights and obligations in performing their corporate tasks.
With respect to the notion of corporate interest there is a general trait that
is in line with the findings regarding the shareholder and stakeholder models.
In Section 4.3 we concluded that neither of these models seems to prevail, that
both models will probably continue to exist separately and that the differences
will become less relevant. With respect to corporate interest a similar obser-
vation can be made. In those jurisdictions which embrace the shareholder
model, there are mechanisms counterbalancing the primacy of shareholders’
interests, where such primacy would result in unacceptable prejudice to the
interests of the other stakeholders. In the jurisdictions that are more orientated
to the stakeholder model, the functioning of the various corporate bodies is
already required to observe a broader range of interests than shareholders’
interests alone.
4.7 Conclusion
The separation and differences between the shareholder model and the stake-
holder model may continue to exist in the various jurisdictions discussed
above, but the relevance of the distinction seems to become less outspoken.
The wide powers of the board in the US jurisdictions and the concept of
enlightened shareholder value in the UK, in combination with corporate prac-
tice allowing for CSR, seem to indicate that the interest of the shareholders is
not the dominant factor for the board when determining the corporate strategy.
In these jurisdictions there are mechanisms counterbalancing the primacy of
shareholders’ interests, where such primacy would result in unacceptable prej-
udice to the interests of the other stakeholders. In the jurisdictions that are
more orientated to the stakeholder model, such an assumption of shareholders’
primacy does not exist. In both concepts, the container term ‘corporate inter-
est’ reflects the criterion that is to serve as a yardstick for the board, and for
the other corporate bodies, to determine their strategy.
Above we pointed to the competition between the two models and we
explored the question of whether or not one of these models prevails or is
230 Globalization and private law
national trade in these products was extensive enough for these ‘bad loans’ to
result in very serious financial problems for the many banks and institutions
that were involved in such trade. These problems then escalated into an
economic crisis affecting the global economy.
Initially, these risks did not materialize, mainly because of the fact that the
prices of houses continued to rise in the US. Loans that at the outset exceeded
the value of the underlying mortgage could benefit from rising market prices
and become sufficiently collateralized. In 2007 and 2008, however, the rally
on the housing market came to a halt and it surfaced that many of the original
loans were provided to lenders with insufficient repayment capacity and
against equally insufficient collateral. The bankers engaged in the process of
granting the loans and the repackaging thereof were tempted to disregard the
risk of default and of insufficient collateral because of the incentive system
providing bonuses to the bankers who were able to fabricate these products of
securitization. The products became a trade without the market recognizing
the underlying loans, collateral and risks, which trade resembles ‘manias’ that
have occurred earlier in history.39 As a result many US banks and financial
institutions had to accept entire or partial write-offs of these products. This
was also true for banks and institutions in many other jurisdictions as the prod-
ucts were traded on a global scale. These problems threatened their solvency
and continued existence, resulting in bankruptcies and governmental financial
intervention to prevent the collapse of those financial institutions that were
considered to be essential to maintain the economic and financial system.
The granting of these loans which were repackaged into financial products
was the responsibility of bankers who worked under the supervision of their
boards. The boards were accountable to their shareholders. Notwithstanding
these inherent checks and balances the credit crunch and the ensuing economic
crisis occurred. One of the causes of this was the banking remuneration system
through which bankers received substantial incentives as a bonus for concluding
deals in which financial products were sold on the market. It is held that these
bonus systems invited irresponsible behaviour by bankers who concentrated on
the marketing of the financial products without giving appropriate consideration
to the underlying transactions.40 The system of corporate organization and the
division of tasks and responsibilities between the various corporate stakeholders
nevertheless appeared to be incapable of preventing this behaviour.
Before and concurrently with the credit crunch, there were other examples
challenging the corporate system in the form of shareholders’ activism that
could be held to be against the interests of the corporation.41 Activist share-
holders seem to have had manoeuvring space especially in the Netherlands. In
some of the other European jurisdictions there are structural barriers checking
the unhindered exercise of power by activist shareholders. In Germany the
‘Depotstimmrecht’ enables banks to vote on the shares deposited by their
clients. The banks appear to often favour the views of management. In France
there are structural barriers as well. French practice shows dual voting rights,
concentration of shareholdings in the hands of families, workers and govern-
ment, and shareholding pyramids. The French government seems to be
prepared to protect ‘national champions’, as was evidenced when the French
President announced that the government would not permit that the vulnerable
position of Société Générale, caused by the speculation losses in 2008 in the
amount of about 5 billion euros in combination with a loss in the amount of
about 2 billion euros resulting from the credit crunch, be exploited, suggesting
that the government would intervene in case of a hostile bid on the shares of
Société Générale. The shares in Italian corporations are often in the hands of
one or more families through direct or indirect participations. Although less
frequently than in the French situation, the Italian government holds shares in
national corporations. Also in Spain corporations are often controlled by fami-
lies. Banks hold substantial holdings in listed corporations but there is no
governmental shareholding. On the other hand, in the United Kingdom there
are no technical or structural barriers hampering the exercise of power by
shareholders.
Analysing these findings in respect of some important jurisdictions of the
European market, the conclusion must be that the creation of a level playing
field on a harmonized market has not been achieved, as a result of the contin-
ued existence and use in the various member states of the EU of a range of
different structural and technical barriers to the exercise of shareholders’
powers.
The examples listed above show governance systems that allowed unrestricted
power and possibilities for activist shareholders who promoted their own
short-term interests, often at the expense of the corporate interest of the corpo-
Corporate law will change as a result of and reaction to the crisis. Additional
grounds will be explored to protect the corporation against shareholder influ-
ence that would be against the corporate interest.
One of these new grounds may be derived from the concept of constitu-
tionalization of corporate law, following the concept of constitutionalization of
private law.43 This notion could be relevant in the case of attempted influence
by activist shareholders or by governments after nationalization of former
public corporations. It is conceivable that the corporation would oppose such
exercise of influence by these shareholders on the basis of constitutional rights
such as the right that ownership be protected.44
Another possible additional complication may be the investments by sover-
eign wealth funds, entities that invest funds of states with substantial surpluses
from base materials and commodities, such as the oil producing states.
Emerging economies like the BRIC countries also dispose of substantial
means. These funds are frequently invested in listed corporations and such
investments give rise to concerns in certain jurisdictions, including the US.
The Chinese state investments in the US in the financial sector (Citigroup,
Merill Lynch, Morgan Stanley, Nasdaq), private equity houses (Carlyle and
Blackstone) and industry (AMD) have generally resulted in substantial losses.
42 Every jurisdiction had to deal with its corporate scandal(s), for example the
United States: Enron and Healy (2003); the United Kingdom: Bank of Credit and
Commerce International, http://news.bbc.co.uk/2/hi/business/3383461.stm; Germany:
Hypovereinsbank, http://www.nytimes.com/1999/10/27/business/international-
business-german-bank-forces-out-executives-after-scandal.html; the Netherlands:
Royal Ahold (De Jong et al. (2005)); France: Vivendi Universal (Coffee (2005)); Italy:
Parmalat (Ferrarini and Giudici (2005)); India: Satyam (BBC report available at
http://news.bbc.co.uk/2/hi/business/7818220.stm); Japan: Livedoor Co. (available at
http://www.reuters.com/article/companyNewsAndPR/idUST10637220070216).
43 Smits (2006, pp. 9–22); Lindenbergh (2006, pp. 97–128).
44 See Protocol No. 1 on the Convention for the Protection of Human Rights and
Fundamental Freedoms as amended by Protocol No. 11, http://conventions.coe.int/
Treaty/en/Treaties/Html/005.htm, accessed 1 May 2009.
234 Globalization and private law
Nevertheless, no powers or authority could have been exercised with the strict
application of existing rules and regulations. Ex post analysis about the causes
of an event is not always commensurate with what could or even should have
been known at the moment of the occurrence of such an event.
This problem obviously also arises in the analysis of the credit crunch.
There are generally accepted explanations about the driving factors behind the
crisis. One such explanation is related to the banking remuneration policy
under which bankers could receive incentives that corrupted the process of
responsibly financing banking customers. Indeed, with the benefit of hind-
sight, it may be concluded that the options and other financial instruments
offered to senior bankers may have presented incentives to act in their own
interest and not in the interest of the bank or the customers of the bank. It
should be noted, however, that the strong condemnation that is now widely
heard was entirely absent in recent years, whilst the remuneration system was
quite transparent.
The question is therefore whether the ex post judgment is hindsight
wisdom, resulting in functional comprehension of the past that can be trans-
lated into useful strategic measures for the future, or hindsight bias. In the case
of the latter, a possibly better or different explanation is prevented. In the case
of hindsight bias, proper judgment is blurred because the adverse or negative
consequences of the historic act under review are already known and in
analysing such act the adverse or negative consequences are already
discounted. In other words, an objective analysis of a situation is corrupted by
knowledge of the outcome of the event. There are many examples of such bias
in the legal practice. The following example may illustrate this point. A defen-
dant has taken reasonable care, but has nevertheless caused a traffic accident.
His level of care will be reviewed with the knowledge that the level of care
Selected developments in corporate law 237
was inadequate to avoid injury. His level of care will therefore seem less
reasonable in hindsight than it did in foresight.48 Another example is drawn
from an American study in which certain possible jury members were asked to
assess whether a given act was reckless: 37 per cent of the group that did not
know about the consequences thought that the act was reckless, but in the
group that did know about the consequences 67 per cent thought that the same
act was reckless.49
Earlier studies had already shown that judges, for example, were largely
unaware of the effect that outcome knowledge had on their perceptions.50 This
ignorance caused them to over-estimate the factual accuracy on the basis of
which they formed their judgment. Knowing about the outcome seemingly
only contributes to understanding the past and actually prevents learning from
it. Knowing about the outcome of ‘the story’ makes that outcome seem
inevitable and predictable, but in fact there is distortion of the perception of
what could have been predicted.51
Analyses of the causes of the current credit crunch which has led to a global
financial and economic crisis may suffer from hindsight bias and prevent
proper and effective decision making in the process of restoration of confi-
dence in the financial markets.
There are also other factual circumstances that have prevented the – theo-
retically available – use of shareholders’ rights, including the feature of
managerialism in the US and the other structural barriers to shareholder
democracy discussed above.
It is therefore appropriate to explore to what extent the efficiency of the
reflex response to crises, namely the strict exercise of existing legal means in
combination with the introduction of new regulation, could be supported by
complementary action contributing to efficient implementation of existing
regulation and creation of new regulation.
The conclusion of these observations must be that there is no clear and
convincing explanation of the causes of the present crisis and that the reme-
dies offered do not warrant a stable, consistent or reliable solution. This is a
rather alarming observation. The proposed remedies in the realm of regulation
should be encountered with modesty about the accuracy of the stated causes
of the crisis and the healing effect of regulation. The uncertainty about causes
and solutions is also exhibited in various recent reactions, of which some are
summarized below.
6.2 Confusion
In the course of 2008 the credit crunch appeared to evolve into a global finan-
cial and economic crisis. It was understood that current regulation was insuf-
ficient to cure the underlying causes and problems and that new ways had to
be found to escape from the present delicate situation. The recommendations
and findings were not univocal. Below we present some of the views
expressed.
In October 2008 Alan Greenspan, who had been Chairman of the Federal
Reserve of the United States from 1987 to 2006, admitted to being shocked by
the financial crisis. He advocated more and stringent regulation for banks,
thereby distancing himself from his own earlier wish to have a more or less
entirely free financial market. He considers more regulation to be a prerequi-
site for resolution of the present crisis.
Later that same month the president of the Dutch Central Bank pointed to
the resemblance of the crisis to the tulip mania in 1630 and concluded that lack
of confidence was the main cause of the crisis. He mentioned that the finan-
cial market is especially dependent on confidence in every layer and link in the
system, reliable figures, sound people and well-enforced laws against fraud
and corruption.52 Confidence is interrelated with and based on the integrity of
the market players. The Central Bank would concentrate (more) on the super-
vision of financial sector integrity.
In March 2009 the Caux Round Table issued a reformatted form of the
Caux Round Table Principles for Business, which were first published in 1994.
In the introduction to these Principles the following is mentioned: ‘Trust and
confidence sustain free markets and ethical business practices provide the
basis for such trust and confidence.’ The subsequent seven Principles ‘recog-
nize that while laws and market forces are necessary, they are insufficient
guides for responsible business conduct’. Upon reflection, this view does not
have to differ in principle from the opinion expressed by Alan Greenspan, as
it is widely recognized that new regulation should be paired with a normative
revival outside the strict domain of mandatory law.
In this respect it is interesting to refer again to the general observation that
the remuneration systems in the financial industry are generally and often
mentioned as one of the causes, or even the primary cause, of the present
crisis. As discussed in Section 5 above, the remuneration system for bankers
was initially built on bonuses for ‘selling’ mortgaged loans that were repack-
aged in financial products. In addition to these bonuses there were also other
incentive schemes for bankers, and in particular for bankers engaged in
52 Wellink (2008).
Selected developments in corporate law 239
The growth of the capital market debt in the US since 1980 has been stagger-
ing and amounts to some 350 per cent of GDP in 2008. This enormous amount
is financed by national and international investors including foreign govern-
ments. Already because of this fact it should be no surprise that any financial
problem in the US will cause financial problems in the countries of the
lenders.
It is now held that banks and individual bankers did not notice this possi-
ble effect, continued trading with an emphasis on short-term results, put the
savings of their customers at risk when conducting merchant banking and also
ignored other signs on the wall such as the ‘perverted’ remuneration systems.
This general view expressed in politics and seemingly also by the general
public through newspapers has led to reproaches to bankers who have not yet
answered thereto. There are some exceptions where bankers have accepted
responsibility for the malfunctioning of the banking industry and even apolo-
gized for banking behaviour.57 In some countries there were public parlia-
mentary hearings where a critical review took place of the performance by the
banking industry and by individual bankers. On these occasions, however,
only hesitantly were some excuses formulated by bankers. There seems to be
a continued frustration that the causes of the present crisis are largely attribut-
able to the banking industry, but that the banks and the bankers are not being
held responsible and the problems are being solved retroactively by means of
regulation which does not affect the past.
It is likely that this frustration impedes the acceptance and legitimacy of the
legislative efforts to overcome the crisis. For a successful transition to a new
system for the banking industry such acceptance and legitimacy are required. As
we will discuss below, a clearly stated apology by bankers may be a necessary
or useful intermediate step. In addition to the instances mentioned above there
are also other examples of apologies by bankers, but there has not been a clear
and unambiguous statement of apology. One of the reasons could be that apolo-
gizing for the crisis may result in legal liability for the banker taking or accept-
ing the blame. It would be unreasonable to expect that one banker be prepared
to face this liability and provide the other bankers with free-riding possibilities.
Additionally, even if such a banker would be insured under a directors’ liability
insurance, the terms of such an insurance would probably not allow the banker
to admit responsibility and thereby accept liability. To require an apology never-
theless would then lead to a reasonably unacceptable consequence of loss of
coverage. For bankers, this would be an acceptable reason for refraining.
The bookkeeping scandals and the present global financial and economic
crisis share a common reflex reaction that the rule of law be employed to
prevent repetition and to identify and hold accountable those who have caused
the financial and societal harm. Indeed the rule of law, whether or not amended
to reflect the new social reality, forms an essential instrument to restore the
proper functioning of the financial markets and to indirectly contribute to the
resolution of the economic crisis. Strict, modern and goal-oriented regulation,
however, does not necessarily ensure the required sound behaviour, and may
in some instances even be counter-productive as strict regulation generally
also invites efforts to circumvent strict application.
In the bookkeeping scandals creditors were misled and harmed by intrans-
parency and often by the pursuit of personal wealth by management. The scan-
dals occurred against the background of a strategy directed at growth. In the
credit crisis there was similar misleading and harming of creditors, and
perhaps the events were accelerated by the remuneration culture that was a
specific characteristic of the banking industry. It is understandable that in
corporate governance codes new emphases are placed, including restrictions
on remuneration. Also, in other codes and documents that qualify as ‘soft law’,
provisions are introduced to advance the level of integrity of the corporation
and those who are responsible for its strategy.
Soft law has many precedents and a wide range of applicability. It is gener-
ally international and it colours the hard law notion of ‘reasonableness’. In this
242 Globalization and private law
oversimplifying somewhat, honoring your word, as we define it, means you either
keep your word, or as soon as you know you will not, you say that you will not be
keeping your word to those who were counting on your word and clean up the mess
you caused by not keeping your word. By keeping your word we mean doing what
you said you would do and by the time you said you would do it.
6.5 Conclusion
The shareholders’ rights that might have prevented the crises were not used,
which is a statement of fact and not of opinion. Ex post judgments about what
could or should have been done in order to avoid scandals and crises can be
unfair or ill founded. Ex post judgments and proposals to resolve the crisis and
avoid repetition of scandals and crises centre on more law and supervision, but
added to that is a public demand that those who are deemed responsible for the
scandals and the crises apologize and be held responsible. That public demand
must be answered to restore confidence in the financial and economic markets.
In order to judge past and future, ethical standards are required, but perhaps
with the exception of a very practically and newly defined concept of
‘integrity’ it is difficult to catch ethical terms in operational guidelines.
The above does not depict a clear vision of the past and the future. It does,
however, accurately describe the uncertainty about causes and cures for the
present crisis. Yet it is possible to draw the cautious conclusion that in the reso-
lution of the present crisis, at least from a legal point of view, (i) new and
amended regulation is required, (ii) supervision of the financial markets
should be reinforced, (iii) normative elements of ethics should be addressed in
the process, and (iv) confidence in the financial and economic markets must
be restored. Resolution of the crisis cannot realistically be expected without
these four elements forming the basis thereof. It will be difficult, however, to
fulfil the normative conditions, and without a concrete vision of these condi-
tions the drafting and institution of regulation and supervision will be ineffec-
tive. In the next sections this problem will be further explored.
The above observations regarding the limited effects and indirect function of
law making do not imply that regulation could not substantially contribute to
the solving of crises. Mentioning only a few aspects, it should be noted that
the indirect function of sanctioning certain behaviour may encounter the diffi-
culty of enforcement, but may also have the symbolic effect of establishing
normative guidelines.
Even ineffective or inefficient laws can nonetheless be of value because of
the self-repairing reaction by constituents. Laws are necessarily formulated in
words but should be observed through action. A translation from words into
acts is therefore a necessary intermediate step between observing the law and
reaching the normative goal of the law. Such a translation may entail transla-
tion faults or other imperfect transposition, but because of the normative char-
acter of the regulation the constituent may correct that translation and apply
the rule in conformity with the original intention that was the basis for law
making.
7.2 Transition
The solution of the global crisis requires a transition from a system that
allowed irresponsible banking practices without proper supervision, which
ultimately caused a global system crisis, to a system with sufficient warranties
against the reoccurrence of these disastrous effects.
Transition under such pressing circumstances requires and implies imme-
diate action to address, ex post, visible causes of the crisis. Examples thereof
are the stringent provisions which are included in the intermediate regulatory
measures to curb the remuneration of bankers and the introduction of stricter
supervision. Transition also requires addressing long-term possible future
effects, similar to the effects that caused the present situation to occur, that
could threaten the sustainability of the solution, which effects, however,
cannot be known or established ex ante. This poses the prevention paradox
that an infinite number of facts, all in causal relation, appear to have caused
the event to be prevented in the future, and that such prevention should address
all of these facts, which is impossible ex ante.64 This notion prompts legisla-
tors and others responsible for the resolution of the crisis to modesty in setting
the ambitions in respect of controlling the future.
Transition typically coincides with reckoning. The causes and culprits
responsible for the crisis are to be identified and exposed, which is to be
followed by sanctioning. Because of the fundamental equality of people before
the law, legal sanctioning can only take place on the basis of generally applic-
able and existing regulation. An equally important principle is the separation
of powers whereby justice is administered by judges independent from the
lawmaker and the executive. The transition and the reckoning that automati-
cally comes with the transition must therefore respect these principles in order
to maintain political and civil legitimacy.
Drastic regime changes can take place through replacement or transition. In
order to prevent violence, which typically goes together with replacement,
also occurring in a transition, truth or inquiry commissions are an effective and
tested instrument. Although history has shown that violent replacement can
sometimes not be avoided, the necessary reckoning with those responsible for
the previous regime is problematic. This was illustrated in an article in the
Economist of 22 November 2003:
Trials, such as those of Balkan war criminals, only provide a punishment after the
accused have fallen from power and no longer provide a potent threat. If anything,
the threat of trial only serves to make people cling to power at all costs.
Yet the problem has to be addressed because neither truth nor reconciliation is
likely to be possible unless the primary tasks of justice have been carried out.65
The inquiry commissions that operated in the recent decades made efforts
to mitigate these and other negative effects of regime changes. The South
African Truth and Reconciliation Commission is taken as an example, not only
because of its unique authority to grant amnesty, but also because there is
much information about its method of working and the results of its opera-
tions. It may well serve as a yardstick to be used when considering the neces-
sary conditions for a transition from the present crisis into the next era.
The transition to a modern democracy that took place in South Africa during
the period in which the release after 27 years’ imprisonment of Nelson
Mandela on 11 February 1990 was a climax and a turning point, is character-
ized by the operations of the South African Truth and Reconciliation
Commission (TRC).
The goals of the TRC were to know and acknowledge the truth about past
human rights abuses, in order to prevent amnesia about these events, to ensure
justice in terms of respect for human rights and the rule of law, acknowledg-
ing that prosecution does not always result in justice in a transitional society,
and to effect reconciliation aiming at conflict resolution and social rehabilita-
tion. The institution of the TRC was a compromise and the result of negotia-
tions between the ancien régime and the new civil power and was given a
constitutional basis in the interim Constitution of 1993, thereby achieving a
legal and even constitutional embedding and legitimacy.
A unique feature of the TRC was its authority to grant amnesty. This was
particularly ambitious against the background of the notion mentioned above
that neither truth nor reconciliation is likely to be possible unless the primary
tasks of justice have been carried out. In the South African context there were
additional considerations for the transition aided by the TRC, with the power
to grant amnesty, rather than revolutionary transition. A military victory of the
ANC and a subsequent tribunal to try those responsible for apartheid and the
blatant infringements of human rights were unlikely to be effective. The
chances that a revolutionary transition would result in democracy and respect
for human rights were very dim. The perspective of a civil war with the
unavoidable atrocities which could be expected to occur, in combination with
the threat that the war would spread over the entire African continent, was
another reason to seek another form of transition. Further, a criminal tribunal
would be very difficult in the multiracial environment of South Africa as the
tribunal would inevitably be seen by some, or by many, as not impartial and
as unjust. The main goal was not prosecution and punishment but the restora-
tion of the rule of law. All these elements resulted in a negotiated agreement
between the two parties, the ANC and the ancien régime.
The TRC, as it was finally instituted, was an inquiry commission with the
primary task to find and acknowledge the truth, which is a fundamental condi-
tion for a transition to be successful. All of the other similar commissions in
the continents of South America and Africa and the countries Nepal, Germany
and Sri Lanka were also inquiry commissions. The Chilean commission was
the first commission that, in addition to the task to find and acknowledge the
truth, also included reconciliation in its goal. The commission’s objective was
to find the truth and to create on the basis of the truth so found the necessary
conditions for achieving national reconciliation. The truth was also seen as a
necessary condition to restore the dignity of the victims and to make possible
amends for the damage done. The Chilean truth and reconciliation commission
has served as an example and precedent for the TRC. Truth and confession are
linked to justice and forgiveness. There is also an opening to criminal law that
is applied only after the truth has surfaced.
7.4 Amnesty
The TRC was the first commission with the power to grant amnesty. This is
normally the prerogative of government. The power was given within
legally stringent conditions and only after ensuring, through negotiations,
the broad political legitimacy of the concept. In fact, however, there were
relatively few people who actually received amnesty. This was due to earlier
initiatives in the Indemnity Acts of 1990 and 1992. These acts provided
indemnity for thousands of people who did not apply to the TRC for
amnesty. This frustrated the main objectives of the TRC, namely both the
finding of the truth before justice could be administered, whether or not
using amnesty, and the process of reconciliation that is conditional on find-
ing the truth and knowing that justice is done. Nonetheless, the work of the
TRC was approved by a majority of the non-white and a substantial minor-
ity of the white people.
This is a remarkable achievement, especially because the TRC had to
surmount opposition and tensions with political parties, and with the
prevailing ANC, and had to defend itself against claims and allegations of
being partial, predetermined and arbitrary. The TRC had to decide on issues
that normally are considered and decided by courts. This was particularly
true when amnesty was involved. The TRC did not apply the standards of
fact finding that are typically used by courts and, whether or not this was
done in a fair manner, there was a public perception that politics and other
non-legal considerations did play a role in decisions on amnesty requests.
On the other hand, the acceptance of the concept of the TRC proceeding
and granting amnesty was based on the constitutional foundation of this
authority, which guaranteed that the process of deciding whether or not
Selected developments in corporate law 249
amnesty was given indeed was a process and not an automatic right of the
person that invoked the amnesty provisions.
The discussion of these features has led to the conclusion that solutions to the
corporate scandals and the present global crisis that were focusing on the
introduction of more supervision through regulation could not credibly present
an effective resolution, as the required legitimacy thereof should be supported
by regained confidence in the financial and economic markets. Restored confi-
dence cannot be achieved by regulation alone but must be supported by means
that contribute to the legitimacy of the resolution.
250 Globalization and private law
8.3 Recommendation
The key elements of the functioning of the TRC were: dealing with the past by
exposing as many details as possible; allowing for full revelation of the details
that made apartheid an objectionable system; hearing both victims and perpe-
trators; not offering amnesty in general but allowing amnesty only through due
process and on grounds with constitutional foundation; and finally achieving
justice and reconciliation on the findings during the public hearings. The
results of the TRC contributed to the legitimacy of the new system in South
Africa after a social and political transition without the occurrence of violence
and perhaps even civil war that otherwise could have threatened the peaceful
transition.
Resolution of the present crisis also implies transition. The fact that this
crisis is not a political one does not mean that the method of the South African
transition has no significance for its resolution. The widespread demand that
bankers and others responsible for the current crisis apologize and the public
hearings in parliaments of some countries support the contention that any
regulation to resolve the crisis should be accompanied by measures to create
the legitimacy thereof.
Referring to the South African TRC in a discussion of the present crisis and
proposing initiatives that may assist in the resolution of the crisis requires
Selected developments in corporate law 251
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9. Globalization and corporate law
Philip Sutherland
1 INTRODUCTION
[I]f asked to specify what they understand by ‘globalization’, most people reply
with considerable hesitation, vagueness and inconsistency. Moreover, much discus-
sion of globalization is steeped in oversimplification, exaggeration and wishful
thinking. In spite of a deluge of publications on the subject, analyses of globaliza-
tion tend on the whole to remain conceptually inexact, empirically thin, historically
ill-informed, economically and/or culturally illiterate, normatively shallow and
politically naive.1
The globalization debate has become intense in recent years as there is much
at stake.2 This chapter will consider the impact of globalization on corporate
law by focusing on multinational corporations (MNCs) and their regulation. In
doing so it will fall into all of the traps mentioned. It starts with an evaluation
of globalization, MNCs and corporate law theory in order to set the stage for
further analysis. It will then consider the different manifestations of corporate
regulation of MNCs in the globalized environment.
2 WHAT IS GLOBALIZATION?
The term globalization has been used to label almost every important phenom-
enon of the last twenty years.3 The concept has become so controversial that it
is almost impossible to give any uncontested account of it. Perhaps the most
helpful, but at the same time vague, definition is that globalization is a ‘process
of intensifying interconnectedness’.4 Not only may this interconnectedness
255
256 Globalization and private law
transcend territory but it may even become disconnected from the concept of
territory, or supra-territorial.5
Globalization is often equated with economic globalization.6 But economic
goals do not actualize in a vacuum.7 The significance of social and political
globalization should not be underestimated. Tavis therefore distinguishes
economic integration, democratization and global governance networks as
elements of globalization.8 However, even this expanded approach pays too
much respect to the economic aspect of globalization. Scholte’s description of
globalization focuses on the reduction of barriers to social contacts: the shift
in the nature of social space.9 For him globalization means that the global field
becomes a social space.10 Humans now often have a global experience of
space. They are more able physically, legally, linguistically, culturally and
psychologically to interact in a global sphere.11 This has created a global
consciousness.12 The global dimension also has been relevant in considering
environmental, cultural, equality, health, governance and security issues.13
Nevertheless, there is little doubt that the economic dimension of globalization
has been at the core of the globalization discourse.14 It is particularly impor-
tant for the purpose of evaluating the influence of globalization on corporate
law and it perhaps constitutes the most advanced form of globalization. It will
accordingly receive considerable attention here although an attempt will be
made to consider other aspects of globalization and their interface with
economic globalization.
‘closer integration of persons and countries’. The Interim Report of the Special
Representative of the Secretary-General on the Issue of Human Rights and
Transnational Corporations and other Business Enterprises (2006), UN Document
E/CN.4/2006/97 (22 February 2006), par. 10 describes the globalized world as one
where ‘actors for which the territorial State is not the cardinal organizing principle have
come to play significant public roles’. Friedman (2000, p. 8) says the overarching
feature of globalization is integration instead of walls and divisions.
5 Scholte (2005, pp. 60–64).
6 See for instance Backer (2006, pp. 287, 290, 309–10); Pillay (2004, pp. 489,
492–3).
7 Pillay (2004, p. 496); Pinto (2005, pp. 487–8). The same will apply on a micro
scale: Friedman (2000, pp. 162–3) who states that an emerging society is more impor-
tant than an emerging market for the survival of globalization.
8 Tavis (2002, pp. 487, 489).
9 Scholte (2005, p. 59).
10 Scholte (2005, p. 61).
11 Scholte (2005, p. 59) does not mention economic interactions but it is
believed that they should be included in the list. See Pinto (2005, pp. 487–8) for the
impact of this on corporate law scholarship.
12 Scholte (2005, pp. 73, 99–101, 116).
13 Scholte (2005, pp. 62–3, 70 ff., 113–15).
14 Saul (2005, pp. 17–20).
Globalization and corporate law 257
27 Branson (2002b, pp. 121, 126, 131, 132); Tavis (2002, pp. 489, 501); Stiglitz
(2006, pp. 9, 69); Mayer (2002, pp. 585, 648); Friedman (2000, pp. 190–93); Backer
(2006, pp. 290–91). Although the decline of the nation state in globalization should not
be exaggerated, see pp. 487, 520–23 where it is argued that the state is disaggregating
but not disappearing, p. 294 where it is averred that states will be deprived of their
monopoly powers in the global sphere. See also the analysis of disaggregation of the
state fn. 877. See also pp. 522, 527 where it is called a ‘loss of agenda setting power’.
See also Backer (2007, pp. 1739, 1774–7, 1784). See the cautious approach of Twining
(2007, pp. 1, 35–7).
28 Stiglitz (2002, p. 21) speaks of a system of governance without government.
29 Scholte (2005, pp. 185 ff.).
30 Westbrook (2006, pp. 489, 491–2); Twining (2006, p. 507).
31 Scholte (2005, pp. 75–8); Stiglitz (2006, p. 22). There often are other layers
in between, see Twining (2007, pp. 11–12).
32 Tavis (2002, p. 491). Surprisingly some authors have shown that territorial
distance even matters for the keeping of financial assets, Portes and Rey (2005, p. 269).
33 Saul (2005, pp. 232 ff.) especially on the manner in which the new economic
powers such as China, India and Brazil focus on their national identity and powers.
34 Scholte (2005, p. 141). See Friedman (2000, pp. 209, 145 ff.) who ascribes an
important but neo-liberal role to the state, see also p. xxi.
35 Scholte (2005, pp. 191–2). See Friedman (2000, pp. 367 ff.) on why the US
is the ideal country for success under globalization.
36 Scholte (2005, p. 81).
Globalization and corporate law 259
243, 246 ff. and 269 ff. He blames this on the insecurities and indignities created by
globalization, see p. 244.
47 Stiglitz (2002, p. 4); Saul (2005, p. 21) but see pp. 205–9; Special
Representative Report (2006) par. 13; Pillay (2004, p. 493); Friedman (2000, pp.
350–51, 355).
48 Stiglitz (2006, pp. 69, 290–91, 292); Saul (2005, pp. 196–7); Friedman (2000,
p. 12); Tavis (2002, p. 514). Rapid change creates opportunities for those who can
exploit them but causes disproportionate harm to those who cannot. The latter group
mostly consists of those who are poor and uneducated, see pp. 517, 520. See further on
the negative consequences of trade globalization Pinto (2005, p. 497).
49 Stiglitz (2006, p. 69); Redmond (2003, p. 77); Pillay (2004, p. 491); Friedman
(2000, pp. 306 ff., 429–31). See Saul (2005, p. 103) who contends that developing
nations generally have not benefited from globalization; Special Representative Report
(2006) par. 13. See also Fort and Schipani (2002, pp. 411–14) with reference to
Amartya Sen and the concept of capability deprivation.
50 Scholte (2005, pp. 33–5); Stiglitz (2002, p. 5). See also Tavis (2002, pp.
513–14).
51 Stiglitz (2002; Stiglitz (2006, pp. 9, 62) where free trade is described as asym-
metric.
52 Stiglitz (2006, p. 21).
53 Saul (2005, p. 202). Or as Branson (2001b, pp. 321, 351) observes, it carries
Globalization and corporate law 261
only yachts. See also Mayer (2002, p. 595) who fears that this expression does not give
sufficient effect to environmental issues.
54 Tavis (2002, pp. 514 ff.); Stiglitz (2002, pp. 17, 237); Westbrook (2006, p.
500). See Friedman (2000, p. 423) on how the connectedness and networks of global-
ization can make people feel disconnected, p. 431.
55 Tavis (2002, pp. 513 ff.); Mayer (2002, p. 594); Stiglitz (2006, p. 9).
56 Branson (2004, p. 911); Mitchell (2001, p. 180) fn. 2 colourfully describes
these investors as rapacious jackals and he notes that their activities cannot be coun-
tered by individual shareholders, referred to by him as the living dead and that the
short-termism is enhanced by the activities of short-term day traders.
57 Scholte (2005, pp. 31–2).
58 Special Representative Report (2006) par. 13; Pillay (2004, pp. 492–3, 497,
522). Stiglitz (2002, p. 9) says that organizations such as the Jubilee movement,
Greenpeace and Oxfam are relevant here. Although the rise in importance of NGOs
may itself undermine democracy, see Saul (2005, pp. 152–4).
59 Scholte (2005, pp. 35–7); Stiglitz (2006, p. 21); Saul (2005, pp. 139–40). See
Friedman (2000, pp. 357 ff.), see also below his concept of globalution fn. 99.
60 Stiglitz (2002, p. 8); Saul (2005, p. 140).
61 Stiglitz (2002, pp. 5, 247); Pillay (2004, p. 491); Branson (2001b, pp. 326–7)
and part V; Saul (2005, p. 114) emphasizes that globalization is a western movement;
Friedman (2000, pp. xix, 9, 23, 291 ff., 379 ff.) especially p. 385. See on globalization
and imperialism Westbrook (2006, p. 491) although he observes correctly at pp. 498–9
that ‘McDonalds commands no armies’. See also in this regard Norms on the
Responsibilities of Transnational Corporations and other Business Enterprises with
regard to Human Rights (with commentary), UN Document E/CN.4/Sub.2/2003/
38/Rev.2 (26 Aug 2003), paras 10, 12; these Norms are further discussed below text
next to fn. 371 ff. See on shareholder culture Pinto (2005, p. 490).
262 Globalization and private law
globalization has not allowed sufficient time for cultures to adapt to changes.62
It is only natural that increased interactions between cultures will reduce
diversity. Languages have been disappearing at an alarming rate.63 From the
tribes of the Amazon to the Bushmen of the Kalahari, few communities have
been able to maintain their lifestyles in the face of globalization.64
Nevertheless, it would be a complete over-simplification to suggest that global
culture has become homogenized in any substantive sense. Although English
is the global language, it embraces a widening variety of dialects and accents.
Even the icon of globalization, McDonald’s, adapts its menu to accommodate
local tastes.65 The end of statism has allowed minorities to reassert their
cultures. Moreover, the internet and international migration also promote the
establishment of new subcultures.66 Still, loss of culture due to globalization
has caused marginalization and alienation. Thomas Friedman explains the
difficult balance with reference to the Lexus and the olive tree. The Toyota
Lexus is the slick symbol of economic globalization: the high-tech reward for
the successful participant in globalization. The olive tree represents the local
identities and cultures that anchor our lives and gives them a deeper meaning.
Yet people are prepared to go to war in places like Jerusalem and Beirut over
ownership of these actual and metaphorical olive trees. Globalization sees a
constant tug between the forces of the Lexus and the olive tree.67
It seems clear that globalization, even if it is frequently detrimental, is not
going to go away.68 Many who are critical of globalization focus merely on
economic globalization while they utilize forces of globalization to promote
their ideas.69 Stiglitz pithily explains the irony: globalization has united many
against globalization.70 The symbols of globalization have been attacked by
violent protestors.71 These attacks can to some extent be blamed on misguided
anarchists. However, they also give expression to real concerns about certain
aspects of globalization.72 Hence, although globalization is often beneficial, it
also requires substantial rethinking and democratic control.
72 Tavis (2002, p. 514); Branson (2001b, pp. 325, 351–2); Stiglitz (2006, pp. 16,
76, 79); Stiglitz (2002, pp. 3, 9) states that what was new about these protests was that
they occurred in the first world, p. 244; Saul (2005, p. 167).
73 Saul (2005, pp. 172–3). See Friedman (2000, pp. xxi–xxii).
74 Scholte (2005, pp. 38–41). See also the summary of the argument, Saul (2005,
pp. 15-16, 73).
75 Mitchell and Simmons (1994, p. xviii) but see Udehn (1996).
76 Tavis (2002, pp. 523–4) on the power of markets.
77 Scholte (2005, p. 40).
78 Saul (2005, p. 6).
264 Globalization and private law
the power of special interests. However, although it ‘has been a neat trick,
presenting an economic truism through which civilization must be
approached’,79 markets are not sufficient to ensure that globalization will not
have unacceptable consequences. Economic globalization has outstripped
other forms of globalization.80 Furthermore, the economic dimension of glob-
alization requires rethinking.81 Most humans do not want a world that is
merely dominated by the cold and inhuman forces of the market. Human exis-
tence is about more than just markets and efficiency.82 Neo-liberal economic
ideas are premised on the ability of actors to act rationally on the basis of
adequate information in well-functioning markets. In reality these conditions
are often absent.83 Political and legal regulation will be necessary to make
globalization work.
With free markets, powerful and inexpensive communication, and no world govern-
ment, people, capital, and ideas can all float across borders. It is tempting to think
that, in this environment, government and governance matter less. In fact, the oppo-
site is true.84
Regulation will be necessary to establish the institutions that make the basic
capitalistic elements of economic globalization function adequately and to
embed capitalism in the societies in which they have to function.85
To what extent is the state the blind spot in our thinking about private law? Is private
law beyond the state still ‘law’? Is private law within the state still ‘private’? To
what extent does private law presuppose the state; to what extent is it irreconcilable
with the state? To what extent can private law in the ‘postnational constellation’
learn from its experience before and within the state?
Corporate law is a form of private law in the wider sense.87 But the statements
about the neglect of private law in globalization discourses are only partly true
for corporate law. Therefore corporate law may be one of the port keys to the
understanding of the relationship between globalization and private law.
Globalization in general and economic globalization in particular has impor-
tant consequences for corporate law.88 The MNC personifies globalization.
MNCs raise difficult questions for corporate law. Although there is also inter-
play between globalization and corporate law, on other levels, the emphasis in
this chapter will be on globalization and the MNC.
MNCs have spheres of influence that exceed national boundaries or some-
times even for which national boundaries mean little.89 MNCs became contro-
versial in the 1960s and 1970s and much was written on them before the rise
of globalization as a topic for analysis, if not as a phenomenon. Yet, they are
the instruments of globalization in the form of economic integration90 and they
91 Branson (2002a, pp. 1207, 1211) with reference to Orts (1998, pp. 1947,
1962); Branson (2002b, pp. 127–130, 351); Branson (2000, p. 669).
92 Branson (2001b, pp. 352–5); Branson (2002b, pp. 127 ff.); Branson (2000, pp.
672 ff.). See the interesting perspective of Saul (2005, p. 190) on the real role of these
organizations.
93 See on this aspect Sub-Commission on Prevention of Discrimination and
Protection of Minorities, The Impact of the Activities and Working Methods of
Transnational Corporations on the Full Employment of all Human Rights, in
Particular Economic, Social, and Cultural Rights and the Right to Development,
Bearing in Mind Existing International Guidelines, Rules and Standards Relating to
the Subject Matter, UN Document E/CN.4/Sub.2/1996/12 (2 July 1996), par. 72;
McLoughlin (2007, pp. 153, 158, 170–73); Weissbrodt and Kruger (2003, pp. 907–8);
Backer (2007, p. 1775); Backer (2006, pp. 303, 363 ff.); Backer (2008b, p. 507).
Compare also the approach of Redmond (2003) fn. 1.
94 Stiglitz (2006, pp. 197–8); Mayer (2002, p. 593). See the criticism of Saul
(2005, pp. 80–81, 176–7).
95 Stiglitz (2002, p. 188).
96 Stiglitz (2002, p. 188); Dickerson (2004, pp. 533, 538) with reference to
Bhagwati (2002) again refers to the rising tide argument; Redmond (2003, p. 71).
97 Stiglitz (2002, pp. 5, 10).
Globalization and corporate law 267
It even has been proposed that MNCs have the potential to promote peace and
democracy.99
However, MNCs and their role in globalization have been blamed for many
of its ills.100 Global civil society has railed against the harms done by
MNCs.101 Indeed some have viewed globalization as the Trojan horse for
global corporations.102 There is considerable doubt whether MNCs indeed
spread the benefits of economic globalization to any real degree.103 The
evidence is that MNCs are often still anchored in particular nations and that
they hoard the benefits of globalization for these nations.104
MNCs have been lightly regulated. Testy lists the reasons for this from a
US perspective:105 a pervasive distrust of regulation and belief in the value of
private ordering, the privileged status of financial capital in corporate gover-
nance and the focus of managers and investors on short-term profits. However,
regulation of MNCs is difficult even if there is a will to regulate.
98 Doremus et al. (1998) especially pp. 84–5 and 93; Branson (2001b, p. 340);
Branson (2002b, p. 124); Stiglitz (2006, pp. 58, 188).
99 Fort and Schipani (2002, pp. 392, 400 ff.) especially pp. 432–3 and the impact
of learning by doing. See Friedman (2000, pp. 167 ff.) who calls this globalution
although he accept the limits of this hypothesis. International capital (the herd) will one
day ride ‘into town like the Lone Ranger demanding the rule of law, and the next day
… stomp right out like King Kong, squashing everything in its path’, see p. 168 while
he accepts that this will be countered by the diminution of the state under globalization,
pp. 190–93.
100 Branson (2001b, p. 352); Redmond (2003, p. 71); Ratner (2001, pp. 446 ff.);
Stiglitz (2006, p. 187) who notes that ‘[t]he left (and the not-so-left) often vilifies
corporations portraying them … as greedy, heartless entities that place profit above all
else’ and ‘[f]or many people multinational corporations have come to symbolize what
is wrong with globalization: many would say they are the primary cause of its prob-
lems’. See the balanced approach in Special Representative Report (2006), fn. 4, at
paras 20–30. See the sources mentioned: Testy (2004) at fn. 8–10. See the Report of
the Special Representative of the Secretary-General on the Issue of Human Rights and
Transnational Corporations and other Business Enterprises, John Ruggie (2008),
A/HRC/8/5, (7 April 2008), par. 16 for a discussion of human rights abuses by MNCs.
101 Backer (2006, p. 309).
102 Branson (2004, p. 912) and fn. 8.
103 Doremus (1998) especially at pp. 84–5 and 93; Stiglitz (2006, p. 58). See the
criticism of Saul (2005, pp. 126, 142, 143) on the type of growth which MNCs produce.
104 Branson (2001b, p. 340); Branson (2002b, p. 124). See below, in this section,
for further discussion of this aspect.
105 Testy (2002, p. 1227–8).
268 Globalization and private law
The size and economic mobility of MNCs will allow them to move their
activities to territories where it will be the cheapest to perform them.106 They
will engage in regulatory arbitrage to avoid the costs of complying with stan-
dards that are put in place to protect those who are affected by their activities
(the stakeholders).107 Accordingly, they exploit employees in developing coun-
tries when they manufacture there at low cost and their employees in developed
countries because they are abandoned in favour of plantation production in the
developing world.108 The internal structures of MNCs ‘have again given the
West access to cheap labour abroad’.109 Inequalities of income are maintained
because high-skilled activities are mostly performed in developed nations and
low-skilled activities in developing ones.110 MNCs are blamed for environ-
mental degradation.111 They tend to produce in jurisdictions that allow them to
flout good environmental practices. They frequently are less responsive to
social problems in countries where they invest than local firms.112 The lack of
transparency in some countries allows MNCs to apply double standards.
Seemingly reputable firms do not think twice about bribing officials in devel-
oping countries. In Southern Africa this is illustrated by the corruption of
European engineering and construction firms involved in the Lesotho
Highlands Water Project and of arms manufacturers in South Africa.113
MNCs frequently are so big and powerful that they dominate smaller
economies who host them. They prefer to deal with other MNCs and make it
difficult for domestic firms to compete with them or to grow sufficiently. They
may prevent smaller and especially developing countries from establishing
powerful indigenous firms on a broad front even if there are country-specific
comparative advantages.114
MNCs cannot fill the void left by the weakening of nation states.115 The
idea that they can fill the vacuum left by the loss of political power of states
because of globalization ‘does sound a bit silly when you lay it out like
that’.116 The power of MNCs allows them to play politics117 and they may
have a destabilizing influence on the politics of nation states because of their
sheer bulk. Their activities have been particularly damaging in developing
countries that are democratically and institutionally weak and in conflict
zones.118 The lobbying activities of MNCs are a major contributing factor to
the evils pointed out by public choice theorists. MNCs have been particularly
successful in lobbying powerful states to skew the international trade system
in their favour.119 MNCs have on occasion had interests in promoting conflict
and even war.120 Moreover, they have sometimes privatized violence in devel-
oping countries.121 Mining and oil companies in Africa, for instance,
frequently have large armies that guard their interests while they occasionally
support military groups and armies with dubious agendas. Military power that
is not subject to democratic constraints is always dangerous.122
MNCs have been a major contributor to the cultural homogenization blamed
on globalization.123 The growth in the demand for their products and the effi-
ciency of their workforces often depend on reduced cultural diversity and
cultural alienation. Even worse is the allegation that MNCs are not culturally
114 Backer (2006, p. 312); Stiglitz (2002, pp. 68–9); Stiglitz (2006, pp. 6, 192);
Saul (2005, pp. 176–7).
115 Saul (2005, p. 222).
116 Saul (2005, pp. 81–3).
117 Sub-Commission on Prevention of Discrimination (1995) at par. 53.
118 Stiglitz (2006, p. 197); Backer (2006, p. 313); Backer (2008b, p. 505); Special
Representative Report (2006), fn. 4, at paras 29–30; Duruigbo (2008, p. 61).
119 Stiglitz (2006, p. 197); Saul (2005, p. 82).
120 Fort and Schipani (2002, p. 399) although they accept that business will more
often be interested in promoting peace. See in this regard Norms with Commentary
(2003) at paras 3–4, the Norms are discussed below text next to fn. 378 ff.
121 Tavis (2002, p. 534). See Kaldor (1999, pp. 6–7) such as Shell in Nigeria. See
also in this regard the proposals Special Representative Report (2008), fn.100, at paras
47–9.
122 Oshionebo (2007, p. 2); McLoughlin (2007) at fn. 1. See Saul (2005, p. 189)
on the role of corporations in the Iraq wars.
123 Branson (2002b, pp. 132–3); Branson (2001b, p. 357).
270 Globalization and private law
neutral but that most still identify closely with powerful Western countries:
that they contribute to globalization as a new form of cultural imperialism.124
Branson has observed that ‘[n]ational differences persist – are “hard wired into
core corporate structures” and “embody distinctive and durable ideologies or,
as some analysts now prefer to call them, belief-systems”.’125 Many MNCs
have retained very specific, often American or European, nationalities despite
globalization and despite being active in many countries.126 Although global
corporations have spread their production processes headquarters have
become more concentrated in the West.127
Too much must not be made of these criticisms although there is at least a
grain of truth in each of them. Again the constraining effect of market and other
non-economic forces of globalization should not be underestimated. Some
claims are exaggerated because the claims of globalization are themselves
overblown128 and because faceless MNCs are convenient scapegoats for the
sins of globalization.129 It is also dangerous to blame all the ills of globaliza-
tion on corporations because, in many ways, they are merely its instruments.130
However, as with globalization, the idea that MNCs are sufficiently inhib-
ited by market forces alone and will be an unmitigated force for good is unre-
alistic and tainted by blind ideology. Market failures occur often enough in
developed countries and very frequently in developing countries. MNCs are
frequently able to externalize the cost of their activities. They have been
described as psychopathic externalizing machines.131 Furthermore, markets
cannot sufficiently protect the interests and values of societies against abuses
by MNCs.132 The instances of misbehaviour are sufficiently widespread to
indicate that it is systemic and that there is a need for corrective measures.133
134 Backer (2006, p. 310); there is also a third question: where must regulation of
global corporations take place? But this question has to be answered separately.
135 This line is borrowed from Testy (2002, p. 1228).
136 Bratton (1989a, pp. 1471, 1491 and 1508 ff.) and Bratton (2001, p. 737)
where it is referred to as Dewey’s indeterminacy argument after an article by Dewey
(1926, pp. 655, 667–78). Bratton ultimately also believes this is true of the economic
approach. See on these theories Bratton (1989a, pp. 1482 ff.); Millon (1990, p. 201);
Tsuk (2003, pp. 1861, 1871 ff.). See especially the colourful description of Buxbaum
(1993, pp. 867, 868).
137 Easterbrook and Fischel (1991); Ulen (1993, p. 301). Although this approach
is not unrelated to previous perspectives on corporations: Millon (1990, p. 229).
138 Coase (1937, p. 386); Cheung (1983, p. 1); Coase (1988, p. 33).
139 Bratton (1989a, p. 1477) calls this the weaker version because it does not
272 Globalization and private law
Especially in the United States, Coase’s ideas were expanded to focus on the
separation of shareholders and managers, which had become the dominant
feature of large US corporations.140 Authors then started to describe a corpora-
tion as a nexus of contracts (contract in the economic rather than the legal
sense).141 Management as the agents (again in the economic rather than legal
sense) of shareholders have an incentive to shirk or to refrain from acting in the
interest of shareholders. There is a dissonance between the interests of share-
holders and managers. Managers will not maximize value for shareholders as it
is not in their own interest to do so. Monitoring systems are established to allow
the shareholders to supervise the extent to which managers promote their inter-
ests.142 Further, efforts will be made to bring the interests of managers into line
with those of shareholders, through bonding. Managers are bonded to corpora-
tions by the structuring of their compensation and by making them sharehold-
ers of the corporation. Monitoring and bonding are not perfect in achieving
maximization of shareholders’ wealth. The cost of monitoring and bonding is
evaluated and shareholders and management put mechanisms in place that
balance these costs with the risks of managerial opportunism.143
Hence, standard contract theory results in several fundamental conclusions.
First, peremptory regulation of corporations is inefficient and inappropriate.
The legal rules that constitute corporate law are intended merely to save trans-
actions costs. Shareholders and management should be allowed to depart from
them in situations where they are inefficient. Only a small number of rules that
are not contractible should be peremptory.144
Secondly, contract theory has contributed substantially to the justification
of the ‘hegemony of shareholder primacy’.145 In the words of the economist
Milton Friedman, ‘[t]he social responsibility of business is to increase its prof-
its’.146 Shareholders should be the ultimate beneficiaries of the actions of
regard the market as operating internally. See also Bratton (1989b, pp. 407, 416–17)
but also p. 421 and the description of the approach of the institutional economists, espe-
cially Williamson. See the criticism of Alchian and Demsetz (1972, pp. 777, 794). See
also on the property rights theory Blair and Stout (1999, pp. 247, 259–61).
140 Millon (1990, p. 230).
141 Bratton (1989a) at fn. 28; Ulen (1993, pp. 319–21) on the origin of the term.
In institutional economics greater emphasis is placed on structure and the role of the
contract itself becomes very limited, see Williamson (1981, p. 1537) and Williamson
(1984, p. 1197). See Bratton (1989b, pp. 446 ff.) on the meaning of contract in this
context.
142 Meese (2002, pp. 1629–31).
143 Bratton (1989a, p. 1478); Bratton (1989b, pp. 417–19).
144 Millon (1990, pp. 230–31); Ulen (1993, pp. 322–3).
145 Testy (2002, pp. 1230–32).
146 New York Times 13 September 1970 (Magazine), p. 32. Friedman’s more
scholarly treatment of his arguments was laid out in Friedman (1962).
Globalization and corporate law 273
All thoughtful people believe that corporate enterprise should be organized and
operated to serve the interests of society as a whole, and that the interests of share-
holders deserve no greater weight in this social calculus than do the interests of any
other members of society. The point is simply that now, as a consequence of both
logic and experience, there is convergence on a consensus that the best means to this
end (that is, the pursuit of aggregate social welfare) is to make corporate managers
strongly accountable to shareholder interests and, at least in direct terms, only to
those interests.148
Only if shareholders bear the residual risk of the success of the corporation
will they have the necessary incentive to ensure that corporations are managed
efficiently.149 Although a corporation is regarded as a nexus of a wide range
of contracts and not just the contracts between shareholders and manager, the
contracting problems in other relationships are generally regarded as easier to
resolve.150 Regulation of these relationships should be external to corporate
law and should take place in labour law, consumer law and human rights law:
‘[m]uch of the economic analysis of corporations … strips these other
contracts of normative importance for corporate law’.151
The contractarian view apparently has considerable academic support in
the United States and, to a lesser extent, even outside of it.152 It has been
147 See in this respect also the influential article of Alchian and Demsetz (1972),
see the discussion below, text next to fn. 201. See the description of Hodes (1983, pp.
468, 487) where the approach of Friedman is described as fundamentalist because it is
based on the notion that a corporation can only have an economic function.
148 Hansmann and Kraakman (2001, pp. 439, 441). See also the evaluation from
a different perspective Greenfield (2002, pp. 605–6).
149 Meese (2002, p. 1631) ‘this “principal–agent” account of the public corpora-
tion, in turn, implies a “shareholder primacy norm”’. See Testy (2002, pp. 1237–8) on
the criticism that the definition of ‘stakeholder’ in terms of the stakeholder approach,
discussed below, text next to fn. 159 ff., is too vague. See Millon (1990, p. 220) on the
influence of Friedman. See generally on the contribution of Berle and Means, Bratton
(2001). See Blair and Stout (1999, pp. 258–65) who call this the ‘grand-design-
principal–agent model’.
150 Cf. Licht (2004, pp. 649, 708–12).
151 Whincop (2001, pp. 168–9), see also the analysis below, text next to fn. 214
ff. See Williamson (1984, p. 1197) who gives an economic but very sophisticated
picture of the role of different contracts in the corporation.
152 Although the position must not be over-simplified: Branson (2004, pp.
918–19).
274 Globalization and private law
153 See the influential Hansmann and Kraakman (2001), discussed below, text
next to fn. 266 ff. Greenfield (2002, p. 583) accepts that it is the conventional position
in the United States.
154 Williams and Conley (2005, pp. 493–5) state that this approach is understood
to ‘valorize shareholder value’. See Dodge v Ford Motor Co 170 NW 668, 684 (Mich
1919); Katz v Oak Industries Inc 508 A2d 873, 879 (Del Ch 1989).
155 But see the criticism of Bainbridge (2002, p. 45).
156 Backer (2006, pp. 308–9) ‘globalization also embraces the structural status
quo’. See the arguments listed by Mensch (2006, pp. 243, 248).
157 Testy (2002, p. 1232) calls these approaches ‘counter hegemonic’ but that
perhaps is only true for the United States. In many other countries they receive much
broader acceptance.
158 Testy (2002, pp. 1246–7); Backer (2006, pp. 300–8); Backer (2008a, pp. 591,
607, 609–12). See the list of models set out in Hansmann and Kraakman (2001, pp. 443
ff.).
159 Or in the US ‘new corporate social responsibility’ to distinguish it from the
variant that applied in the 1970s, see Testy (2002, p. 1229); Branson (2001a, pp. 605,
639–46). Testy above p. 1238 also notes that this is the most aggressive form of
progressive corporate law. It is not clear from the manner in which the term is used by
others that this is always true.
160 Licht (2004, pp. 722 ff.); Testy (2002, pp. 1237–8) mentions that this term
arose in the context of the anti-takeover mechanisms in the US in the 1980s.
161 Mitchell (1995); Testy (2004, pp. 91 ff.); Licht (2004, pp. 713–14). See for the
origin of the term Tsuk (2003, p. 1863).
162 Testy (2002, pp. 1228–9) and especially pp. 1241 ff. See Branson (2002a, pp.
1217–18).
Globalization and corporate law 275
nize the benefits of market capitalism as well as the need for proper regulation
of its institutions to promote their proper functioning. They are not anti-corpo-
rate but acknowledge the dangers of the powers of large corporations, espe-
cially MNCs.163 Earlier forms of CSR required powerful constraints on the
activities of corporations, but current versions are more cautious. They are
more closely focused on corporate theory and the internal structuring of corpo-
rations.164 ‘Instead of regulating the uses to which the tool is put, these
commentators took the redesign of the tool itself’.165 Many proponents of
CSR emphasize sustainability or responsibility reporting by corporations
(sometimes as a singular aspect of CSR but more often as one of a range of
aspects).166
CSR has itself been questioned, even by those who share its broad ideals.
It has sometimes been slated as window-dressing for large corporations, or as
a form of corporate commodification.167 It also may be suggested that there is
an inherent conflict between the interests of shareholders, managers and other
stakeholders. It will then follow that CSR will not sufficiently restrain the
forces that lead management to act in their own interest or in the short-term
interests of shareholders where they conflict with the interests of other stake-
holders.168 The emphasis which some proponents of CSR have placed on
reporting and disclosures also has been subjected to criticism because it does
not establish clear principles according to which the conduct of managers can
be measured.169 It presupposes that stakeholders in the corporation will have
The CSR approach emphasizes the power of corporations and their ability
to exploit it.182 It looks directly at the impact of corporations on society.183
Markets and contracts often will fail to check the powers of corporations in
general and MNCs in particular. Emphasis on greed and profits in the market
will not create sustainable markets.184 Group identities ensure proper co-oper-
ation within the corporation. However, they will also mean that corporations
create a them-and-us mentality. This impacts on the manner in which those
inside the corporation perceive those who are affected by its activities but are
outside it. The organization of business accordingly is not a mere private
matter.185 Corporations have to be subjected to regulation by institutions that
are democratically accountable.186 Conversely, contract theory eschews the
existence of hierarchy and the abuse of power by management.187 It makes use
of transaction economics to present a highly technical analysis of one aspect
of corporate structure.188 It refashions the firm in bold outlines ‘to anchor its
location on the private side of the public private debate’.189 It makes use of the
assumptions of neo-classical micro-economics and is underscored by the
belief that market competition will place adequate restraints on the activities
of corporations.190 It does not recognize the sociological and political signifi-
cance of corporations.191
It is very difficult to express a reasoned preference for one approach over
the other. A choice will necessarily be pre-determined by political orientation.
Contract theory unveils several truths about the nature of corporations and
their function in market-oriented societies. When neo-classical contract theory
meets neo-liberal globalization, it confirms and justifies the optimism of the
advocates of economic globalization. It illustrates the difficulty with state
regulation because of the political processes by which these decisions are
made.192 However, the criticisms of globalization and MNCs illustrate that
there are difficulties with conventional contract theory. The problems with
contract theory are magnified in the global context. Accordingly, the basic
point of departure in this chapter will be that there is a need for comprehen-
sive legal control of corporations in the interest of a wide range of stakehold-
ers, but that it must be done with due respect for markets and the interests of
shareholders. Even in the United States, where contract theory has a strong
hold over legal regulation, there is peremptory regulation of corporate gover-
nance, especially through the Federal Sarbanes-Oxley Act, albeit that it is
mostly aimed at promoting and protecting investment.193
This conclusion is bolstered by more recent works that have questioned
conventional contract theory with reference to its internal logic.194
Behavioural economics is changing our perception of law and economics and
it has fundamental implications for contract theory.195 First, behavioural law
and economics scholars show that individuals do not merely act on the basis
of economic considerations but that they are also motivated by non-economic
beliefs and values. This weakens the normative justification of the efficiency-
focused contractarian fetish with shareholder primacy.196 Secondly, the anti-
regulatory conclusions of contract theory are grounded in the assumptions that
actors attempt to maximize profit and that they are able to determine their best
interests, but psychologists have shown that human beings are much more
complex and that these premises are gross simplifications. Parties who
contribute and participate in the activities of corporations are prone to cogni-
tive biases and they do not merely think of utilitarian efficiency. Like those
who resist the materialism of globalization, they also include non-economic
values in their considerations. The anti-regulatory arguments of contractarians
accordingly must be approached with caution. Individuals are not always able
to establish their best interests and the law may need to intervene to ensure that
the interests of stakeholders of corporations are properly protected and indeed
may even be required to achieve efficiency. Corporate law should remain a
significant source of regulation of relationships inside and around corpora-
tions.197
Furthermore, Blair and Stout accept the postulate that a corporation is a
nexus of contracts and they reject the communitarian notion of a corpora-
tion.198 Yet they are critical of the emphasis which conventional contractarians
place on the agency relationship between managers and shareholders and the
commonly expressed notion that shareholders are the indirect owners of the
corporation, who have residual claims to the business and assets of the corpo-
ration.199 Blair and Stout contend that corporations are aimed at resolving the
problem of team production. Where inputs are produced by members of a team
and it is impossible to discern the input of each team member in the indivisi-
ble result,200 it will be difficult to ensure efficient production by the team and
determine appropriate remuneration for the members of the team.
Conventional contract theory is to the effect that team members will shirk, that
monitoring will be necessary in these situations and that shareholders as resid-
ual right-holders will, through management and the board, be motivated to
undertake supervision.201 Nevertheless, Blair and Stout point out that if inputs
could be established by monitoring, specific contracts could be concluded with
team members.
The really troubling situations are those where it will be impossible to
determine inputs accurately despite careful scrutiny. Blair and Stout stress that
team production often will be effective only if members invest in the acquisi-
tion of specific skills but that team members will make these investments only
197 Greenfield (2002). See also, on the influence of rationality on views of corpo-
rate law, Fanto (2002, pp. 1041, 1053).
198 Blair and Stout (1999, pp. 253, 286) especially fn. 83.
199 Blair and Stout (1999, pp. 290–93).
200 Comparable with the case where ingredients become indistinguishable in the
baking of a cake, see Testy (2002, pp. 1233).
201 Alchian and Demsetz (1972), see the valid criticism of Blair and Stout (1999,
pp. 265–9) because the authors accepted that employees were undifferentiated.
280 Globalization and private law
if they know that they will receive the benefits. In these situations the problem
will be exacerbated if residual rights are given to another participant in the
corporation. If rewards for performance of team members are determined ex
ante, they will shirk. If it is done ex post, members will be loath to make the
specific investments required to allow them to contribute to the team, for fear
that those who have residual rights will engage in rent seeking.
The authors conclude that the directors should be given the final say as to
who should be rewarded for production and how this should be done, in order
to resolve the problem of opportunism in team production. Directors then
become the ‘mediating hierarchs’ who decide how the collective residual
produced by the firm should be divided.202 Only if the team members are
rewarded by the board, as a mediating hierarch, would teams be rewarded
properly while team members would continue to invest sufficiently in firm-
specific skills.203
Despite their explicit rejection of the CSR approach, the Blair and Stout
analysis supports the central tenet that runs through much of CSR: that share-
holder supremacy is untenable. Corporate law cannot be fixated on the inter-
ests of shareholders. Others also make important investments in the
corporation, like shareholders their contracts are frequently incomplete and
they must receive proper returns on their contributions to ensure that corpora-
tions operate properly. Shareholders are unlikely to exercise their power of
supervision effectively. They are as likely to act opportunistically and promote
their own interests at the expense of the other contributors to the corporation,
such as its managers.204 Shareholders who are mobile often focus on the short-
term benefits that are to be derived from corporations. There is no final arbiter
who can serve as the last custodian of efficiency within the corporation. The
installation of shareholders into this position can be justified only on the basis
of other pre-existing and unexpressed preferences. The shareholder primacy
model is based on an a priori ideological position and does not flow neces-
sarily from the basic premises of contract theory.
Blair and Stout’s views appear incomplete and not entirely coherent. First,
even if their approach may be tenable in explaining where corporate law
should go, their attempt to explain current corporate law phenomena such as
derivative claims for shareholders, fiduciary duties and voting rights for share-
202 Blair and Stout (1999, pp. 276, 282) on the activities ascribed to the board, it
goes beyond mediation. See Greenfield (2002, pp. 627–8).
203 See generally Blair and Stout (1999) especially at pp. 265–76 and the
summary Meese (2002, pp. 1637–45).
204 See Meese (2002, p. 1669) who suggests that this problem will be addressed
by giving the right to the residual to the ultimate monitor; such an approach does not
appear to be correct.
Globalization and corporate law 281
205 Blair and Stout (1999, pp. 290–319). To illustrate this, the arguments for only
granting shareholders voting rights appear particularly thin. They contend that share-
holders have voting rights as a representative because they are relatively homogeneous
and that they will be less likely to exhibit pathologies and indulge in rent seeking, while
their aim of increasing the value of their stock will benefit all. Further they submit that
shareholders may be more vulnerable than other groups. These arguments all suggest
that the shareholder primacy model is preferable. Oddly they do not refer to
constituency statutes in this context. See the comments of Meese (2002, pp.
1673–1700).
206 Bratton (1989a) at fn. 37.
207 See the arguments regarding directors in this section below and the observa-
tion by Blair and Stout (1999, p. 323) that corporations are political.
208 Blair and Stout (1999, pp. 327–8).
209 Blair and Stout (1999, pp. 268–9, 292) describe Holmstrom’s (1982, p. 324)
model that provides for a budget breaker but it is not clear to what extent they import
it, at p. 274 they merely speak of the hierarch receiving a ‘nominal share of the team’s
output’, p. 283 where they emphasize that the board will have to act properly to ensure
continuation of employment, pp. 315–18 where Blair and Stout depart furthest from the
approach of traditional economics by relying on normative concepts; Meese (2002, pp.
1665–71). See also the analysis by Licht (2004, p. 715).
210 Meese (2002, pp. 1662–5) and especially p. 1667 on the incentive for
constituencies to monitor the hierarch and the effect of this.
211 See the approach of Blair and Stout (1999, pp. 275, 281, 322–3) and the crit-
icism by Meese (2002, pp. 1646–62).
282 Globalization and private law
212 Testy (2004, pp. 102–3); Millon (2000, p. 1001); Testy (2002, pp. 1234–5).
See in the context of globalization, Blair and Stout (1999, pp. 324–8) which confirms
this fear.
213 Testy (2002, pp. 1234–5).
214 See also Branson (2000, pp. 1212–16); Gevurtz (2002, p. 645).
215 Fischel (1982a, pp. 1259, 1260); Hansmann and Kraakman (2001, p. 441);
Jensen (2001, pp. 297, 300–301). See the analysis of Fischel’s argument: Greenfield
(2002, pp. 593 ff.); Licht (2004, pp. 706–7).
216 Greenfield (2002, p. 594).
217 Hart (1993, pp. 299, 303); Licht (2004) especially at pp. 717–21. See the
problems with regarding corporate law as a regulatory tool, Greenfield (2002, p. 600).
Globalization and corporate law 283
Company law rules that promote social goals may not cause a greater loss
of focus than external rules. Even if a loss occurs, the gain to society may be
more than the cost. Fairness to stakeholders other than shareholders may be
crucial even where the aim of corporate law is economic efficiency. Fair and
equitable governance structures may reduce the cost of monitoring and
produce greater efficiency whereas legislation that promotes fairness outside
the governance structures may promote fairness without having the same
positive utilitarian consequences.218 Next, it will be obvious that, where
broader social goals are to be realized, structures must be created by corpo-
rate law in order to ensure that the values which we believe they should
embrace are internalized or embedded. We should not be surprised if we
have psychopathic corporations where the law does not establish structures
that are based on underlying values and are designed to promote the broader
values according to which corporations should operate.219 Finally, it cannot
be assumed that MNCs will necessarily operate in environments where the
regulation outside corporations will be adequate. In these situations internal
regulation becomes crucial.
Corporate law therefore has much to contribute in guiding the operations of
corporations in general and MNCs in particular.220 When it comes to MNCs,
contract theory looks out of place. In this sphere the main issue is not how
agency problems between shareholders and managers can be resolved, but
rather how managers can be prevented from over-performing in their relent-
less pursuit of profit and to the detriment of many who are affected by the
MNCs’ activities. Branson refers to this as horizontal corporate governance
and contrasts it with contractarian vertical governance.221
218 Greenfield (2002) especially at pp. 591 ff. and 640 ff.; Fort and Schipani
(2002, p. 430) argue, that in any event, well-run corporations already attempt to
promote a multiplicity of goals.
219 See Fort and Schipani (2002, p. 433) on the community that will be created
by a corporation if the promotion of peace is one of its goals and its impact on indi-
vidual behaviour.
220 See Fort and Schipani (2002, pp. 426–8) and the sophisticated argument
against what they call the ‘balance of power approach’.
221 Branson (2002b, p. 122), Branson (2001b, p. 361).
284 Globalization and private law
or those that are affected by MNC activities.222 Yet globalization means that
the establishment of regulation for MNCs is no simple matter.223
222 Byers (2004). See Tavis (2002, p. 538) ‘[g]lobal regulation is critically impor-
tant to mitigate market pressures’.
223 See Backer (2006, p. 310) and the list of complicating factors in the global-
ized discourse, they concern: broader constituencies, a broader range of institutions,
dispersed power.
224 See Backer (2008b, pp. 501–2). For an interesting account of the role of the
state and government in private law, see Michaels and Jansen (2006, pp. 846–60).
225 Branson (2001b, pp. 356, 359–60); Branson (2002b, pp. 130–32).
226 Pillay (2004, p. 499); Branson (2002b) especially at pp. 122, 126, 131–2;
Branson (2001b, p. 357); Backer (2007, p. 1747); Ratner (2001, pp. 535–6).
227 Branson (2002b, p. 132).
228 Danielsen (2005, p. 411), see especially pp. 411–12 on the different ways in
which corporations can shape regulatory regimes.
229 Backer (2006, p. 310); Backer (2008b, pp. 505–6).
230 Backer (2007, pp. 1745–9).
Globalization and corporate law 285
Rogue states lack the will, or more charitably perhaps, the resources, to regulate
large multinationals operating within their borders. Other states deplore the situa-
tion, but persist in ‘free riding’ on the efforts of the states that do exhibit a will to
attempt regulation.232
231 Branson (2002b, pp. 126, 134); Branson (2001b, pp. 356, 358–60); Stiglitz
(2006, pp. 188, 195); Pillay (2004, p. 490); Backer (2006, pp. 291 and 309) on their
ability to allocate risk; Backer (2008a, p. 619); Backer (2008b, pp. 503–4) calls this a
matter of territorial disjunction; Friedman (2000, pp. 134 ff.). Compare on the difficul-
ties of moving around: Bebchuk and Roe (1999, pp. 127, 162–3). Foreign investments
by MNCs are frequently made only if they are granted special privileges that may be
harmful or reduce the benefit of investment, Stiglitz (2002, pp. 71–2).
232 Branson (2002b, p. 136).
233 Sometimes also referred to as chartering states.
234 Branson (2002b, p. 136); Branson (2001b, pp. 356–7). See on policy difficul-
ties, Special Representative Report (2008), fn.100, at paras 39–41.
235 Special Representative Report (2008), fn.100, at par. 14. Although Branson
(2002b) at fn. 66 argues that few corporations have actually moved.
286 Globalization and private law
236 Special Representative Report (2008), fn.100, at par. 14, paras 34–6; Branson
(2002b, p. 131); Branson (2001b, p. 356); Orts (1995, pp. 258–60); Duruigbo (2008, p.
60); Redmond (2003, p. 73); Ratner (2001, p. 462).
237 McLoughlin (2007, pp. 154–5).
238 Branson (2002b, pp. 133–4).
239 On the difficulties of regulating corporations in developing countries, see Fort
and Schipani (2002, p. 432).
240 See e.g. the argument of Michaels and Jansen (2006, pp. 868 ff.) but compare
p. 884.
241 See Saul (2005).
242 Backer (2007, p. 1744) especially the examples pp. 1744–5; Backer (2008b,
p. 502). See, on liability for international crimes committed by MNCs, Report of the
Special Representative of the Secretary-General on the Issue of Human Rights and
Transnational Corporations and other Business Enterprises (2007), A/HRC/4/035 (9
February 2007), paras 23–32 and see par. 34 on liability for other human rights viola-
tions. See below text next to fn. 433 ff., on the liability of corporations in international
law.
243 Below, text next to fn. 440 ff.
244 Stiglitz (2006, pp. 208–9).
Globalization and corporate law 287
such legislation, in the form of the Foreign Corrupt Practices Act, in 1977.245
Many other countries did not prohibit and sometimes even condoned foreign
bribery. In some host countries bribes by MNCs were even tax deductible.
However, the members of the OECD adopted the OECD Convention on
Combating Bribery of Foreign Officials in 1997.246 They have given effect to
the convention and the OECD is reviewing compliance.247 Furthermore, the
General Assembly of the United Nations adopted the Convention Against
Corruption on 21 October 2003. It has been ratified by many countries and it
determines explicitly that states must enact legislation to criminalize the brib-
ing of foreign public officials.248 The OECD’s efforts, in particular, have been
quite successful. Yet, these examples illustrate the limits of international oblig-
ations on states in this area. There are still very few if any international oblig-
ations that bind all states and these obligations address only specific problems
such as bribery. There have also been difficulties with the implementation of
these norms.249
Tort claims against United States (and even some other) MNCs have been
brought in terms of the United States Alien Tort Claims Act of 1789 (redis-
covered in 1980) for acts committed in other countries.250 The European Court
of Justice has decided that national courts of Member States may not dismiss
actions against corporations domiciled in the states on the basis that there is a
more appropriate forum.251 In Australia, a court will only dismiss a claim on
this basis if the forum is ‘clearly inappropriate’.252 Admittedly, attempts to
make use of these kinds of mechanisms have met with innumerable obstacles
such as narrow scope, technical legal difficulties and the placing of obstruc-
tions in the way of proceedings by home states. Yet, they have achieved some
success.253 It may be argued that these measures are imperialistic, but as long
as they are brought before courts of the home states of defendant corporations,
there appears to be a sufficient basis for regulation.254
On a national level the most realistic solution would be to attack the prob-
lems of MNCs with a measure of practical humility and theoretical ambition.
We are unlikely to see wide-ranging grand attempts by states to establish
effective rules to regulate MNCs in national law in the near future. However,
states have a unique opportunity to assert and in some jurisdictions reassert
that corporations have social responsibilities, as the neo-liberal approach to
both globalization and the theory of corporations is in some difficulty. It could
perhaps be in some ways tenable to restrict regulation of corporations in
corporate law and to give full sway to the markets where those corporations
act in relatively homogeneous territories subject to strong legal and social
constraints. However, the argument has little traction when it is applied to
MNCs in heterogeneous and weak regulatory environments.
It is suggested that at least some of the constraints that national jurisdictions
experience in regulating MNCs can be overcome by conceptualizing the
corporation in the CSR likeness.255 It has been contended that there is no
evidence that European MNCs, incorporated in countries that focus on CSR,
are more socially responsible than American corporations that traditionally
follow the contractarian model.256 However, this may be true only because
corporate social responsibility models thus far have been inwardly focused. A
broader perspective on the responsibility of MNCs is required. It should be
asked whether it would suffice for MNCs, with the enormous power which
they wield, to comply with the law and the rules of the market place. Mayer
argues that the power of these corporations brings responsibility to contribute
positively to the welfare of the environments in which they operate.257 Indeed,
it will become apparent from the ensuing analysis that countries will have to
consider CSR seriously in order to comply with international human rights
obligations.258
This embracing of corporate social responsibility, as such, would only
establish a weak constraint on the activities of MNCs. It is weak because it
does not by itself create enforcement mechanisms outside the corporation. It
does not remove the difficulties of fragmented regulation by states that have
lost some of their power. Indeed, most CSR arguments thus far have been
based on the notion that states are able to regulate corporations. It still leaves
the focus on ex ante rather than ex post regulation of MNCs.259 However, it
will establish the legal structure that is conducive to the development of corpo-
rations that are socially responsive and can embed a culture of social respon-
sibility.
Additionally, the establishment of CSR as a basis for corporate law would
give rise to more specific rules that would constrain the activities of MNCs.
Indeed it is suggested that it would be difficult to establish a coherent basis for
regulating MNCs without a sound theoretical basis for developing such rules.
Finally, it may be suggested that any movement towards CSR will be of
little consequence without a general convergence on this basis, as firms will
merely arbitrage away from it. The issue of convergence will be taken up in
greater detail in the next section. However, it may be that corporations that are
set up to be socially responsible are already more reluctant, and it cannot be
asserted more strongly, to indulge in regulatory arbitrage to the lowest level of
regulation. Neo-liberals will argue that corporations in general and MNCs in
particular only react to monetary incentives. However, the earlier analysis of
corporate theory shows that this world-view may be over-simplistic. Law is
not conclusive in setting standards for behaviour but law matters in determin-
ing behaviour. These types of approaches may become all the more important
in a globalizing world where the voice of civil society as monitor of corporate
behaviour is growing as a further constraint on harmful corporate behav-
iour.260
257 Mayer (2002, pp. 588–9, 603–6, 631) with reference to Milton Friedman
above, fn. 146.
258 Below 6.2.1.
259 Byers (2004, pp. 923–4).
260 Below, 6.2.3 and 6.2.4.
290 Globalization and private law
There is no longer any serious competitor to the view that corporate law should
principally strive to increase long-term shareholder value. This emergent consensus
has already profoundly affected corporate governance practices throughout the
world. It is only a matter of time before its influence is felt in the reform of corpo-
rate law as well.267
Buoyed by hubris and hyperbole, some scholars have projected the US model over the
face of the earth, upon scant evidence positing a ‘global’ convergence in corporate
governance. Two academic elites have even decreed the ‘end of history’ for corporate
law and further evolution of the governance model. One wonders what those two
scholars will do for an encore, positing as they have that perfection in corporate gover-
nance has been achieved. They may turn to writing fiction, but the case may be made
that with the ‘end of history,’ they have already made that transition.272
The only predestined inevitability was that contractarians would meet up with
the prophets of neo-liberal economic globalization.
This approach is based on a simplistic view of shareholder primacy and
contract theory in the United States and the United Kingdom which ‘distorts
both the positive and normative aspects of the convergence debate’.273 There
is not always a clear dichotomy between Anglo-American corporate law and
other systems such as those in Japan and continental Europe. The most signif-
icant commonality in the UK and the US is that both share a particular brand
of shareholder capitalism which has culminated in a wide spread of share-
holding in listed corporations. In continental Europe and Japan shares are
often held in large blocks.274 Accordingly, there are important differences
between UK and continental corporate law and this makes it difficult to
harmonize European corporate law.275 However, corporate law in the United
Kingdom and the United States has always diverged in fundamental respects
and the United Kingdom may have moved to a position that is somewhere
between the US and the continental approach.276 The forces that favour CSR
are much more powerful in the UK than in the US.277 The UK government, to
some extent under the influence of the EU, has played a more important role
in promoting the social responsibility of corporations.278 Institutional
investors in general, and institutional investors with long-term perspectives in
particular, are much more prevalent in the UK than in the US.279 It is therefore
dangerous to speak of Anglo-American corporate law.
Furthermore, Hansmann and Kraakman’s justifications for predicting the
convergence on the shareholder primacy model are weak. It has been shown
earlier that there are serious theoretical concerns with this model. Moreover,
the current economic crisis which has emanated from the US and, to a lesser
280 See the criticisms by Branson (2001b, p. 334). See already the earlier views
of Fanto (2002, p. 1054).
281 Hansmann and Kraakman (2001, pp. 450–51).
282 Hansmann and Kraakman (2001, p. 452).
283 Fanto (2002, p. 1048).
284 See on Americanization, globalization and the impact of the EU Michaels and
Jansen (2006, pp. 867–8); Pinto (2005, p. 498); Branson (2001b, pp. 350–52).
285 Licht (2004) and his argument why different cultures may approach corporate
governance differently.
286 Williams and Conley (2005, pp. 495–6); Branson (2001b, p. 333) and the
authorities mentioned there.
287 Williams and Conley (2005, pp. 495–6).
294 Globalization and private law
288 Bainbridge (2002). See the explanation of the manager primacy model:
Hansmann and Kraakman (2001, p. 444).
289 Testy (2002, p. 1237); Springer (1999, p. 85); Branson (2001b) at fn. 63;
Backer (2006, p. 306); Fort and Schipani (2002, p. 430); Licht (2004, pp. 700–705).
See also Tavis (2002, p. 527).
290 Although the process of convergence, even in Europe, has been tortuous, see
henceforth Hopt (2006, pp. 1161, 1174–8). See Hansmann and Kraakman (2001, p.
454) who regard Europeanization as a weak force for convergence.
291 Hansmann and Kraakman (2001) at fn. 13. See also Branson (2001b, p. 336)
on the transferability of UK law.
292 Backer (2008b, pp. 507–8).
293 Above, text next to fn. 243 ff.
Globalization and corporate law 295
made.294 These measures only deal with a limited range of issues and attempts
to oblige MNCs not to infringe human rights have thus far come up against
innumerable obstacles, but they will play some role in undermining a contrac-
tarian convergence.295
So globalization will cause most states to recognize the economic need for
uniformity and efficiency, but it is doubtful whether any grand convergence
will occur.296 Both in attempts at achieving efficiency and deciding whether
efficiency is the primary goal, states will remain sensitive to local culture,297
politics, path dependence and pay-off structures298 as well as the needs of
local economies that are at different stages of development.299 It is more likely
that a number of convergences will occur due to globalization.300
Convergences will take place around several loci, and dynamic convergence
and fragmentation of corporate law will continue to occur despite economic
globalization.301
Moreover, although major convergence on traditional legal rules appears
unlikely, some convergence is occurring beyond national legal systems on the
basis of norms that acquire a quasi-judicial status. First, corporate governance
codes have burgeoned.302 These codes have sometimes been directly
promoted by governments but some, like the King Reports on Corporate
303 King Report on Corporate Governance (1994) known as King I and King
Report on Corporate Governance (2002) known as King II.
304 Hopt (2006, pp. 1161, 1165, 1182–4). See also the International Corporate
Governance Network which promotes the establishment of corporate governance stan-
dards, at www.icgn.org, accessed 4 May 2009.
305 Hopt (2006, pp. 1161, 1165, 1169).
306 Many countries around the world formally or informally adopt the
International Financial Reporting Standards. These norms are set by the International
Accounting Standards Board. It is the standard-setting body of the International
Accounting Standards Committee Foundation. The Foundation has trustees who
appoint members of the board and provide oversight of its activities. Trustees in turn
are accountable to a Monitoring Board comprising leaders from the Emerging Markets
and Technical Committees of the International Organization of Securities Commission
(IOSCO), the European Commission, the Japan Financial Services Agency (FSA), and
the US Securities and Exchange Commission (SEC). Trustees appoint other trustees
subject to approval by the Monitoring Board, see International Accounting Standards
Board, Who We Are and What We Do (2009), available at www.iasb.org, accessed 3
May 2009. See Coffee (1999, pp. 672–3). The US does not apply IFRS but US GAAP.
The highest authority for laying down US GAAP is the Financial Accounting Standards
Board. It is recognized as the standard-setting body by the Securities and Exchange
Commission in the US. However, these standards are converging in the aftermath of
the so-called Norwalk agreement, see Financial Accounting Standards Board website,
at www.fasb.org, accessed 6 May 2009.
307 On the international market for managers see Pinto (2005, p. 488).
Globalization and corporate law 297
There are several problems with domestic law as a regulator of MNCs in the
globalized world.316 It will be difficult to force MNCs to comply with frag-
mented national corporate laws. Even with convergence of laws there will still
be inconsistent enforcement. Moreover, even if the laws of national jurisdic-
tions are enforced, they may still be inappropriate for dealing with the prob-
lems of MNCs because they are generally focused on dealing with domestic
situations.317
These difficulties can be addressed if international rules are made for
MNCs by means of treaties.318 However, it is unlikely that treaties that
adequately deal with MNCs can realistically be established. It will become
apparent from the ensuing analysis that most attempts to establish compre-
hensive international rules have failed dismally.319 Moreover, there are serious
difficulties with the application of international law to corporations, while
international rules by themselves would not establish effective enforcement
mechanisms.320
A further alternative would be the establishment of an international author-
ity that enforces or creates and enforces international, or if you will global,
legal norms:321 a type of global government or even an institution like the
EU322 that could deal with the problems caused by MNCs under globalization.
It has been proposed that the United Nations, the Bretton Woods institutions,
the World Bank, the IMF or the WTO could fill the void left by the reduced
presence of states in the globalized world.323
The Bretton Woods institutions, and especially the last two, have
contributed substantially to economic globalization through their promotion of
free trade and neo-liberal economic policies.324 It may be asked whether their
mandates could not be extended to establish them as organs that are responsi-
ble for addressing its negative consequences. Indeed these institutions have in
recent times become serious about addressing some of the concerns about the
negative consequences of globalization.325 It is frequently contended that they
should promote and protect human rights in the face of an onslaught by
MNCs. Although Alston has suggested that trade organizations should not be
used to promote human rights as it would subordinate the human rights agenda
to the trade agenda,326 it is suggested that such regulation could be a signifi-
cant step forward in the promotion of acceptable conduct by MNCs.327
Yet, it will take a true idealist to envisage that effective rules, equivalent to
those imposed by national or regional authorities on local corporations, can
emanate from, let alone be enforced by, these bodies.328 International institu-
tions are hampered by nationalistic interests, narrow briefs and ideological
narrow-mindedness. In any event, traditional rule-making or enforcement by
an institution that is not subject to democratic constraints seems in many ways
more dangerous than having no rules at all.329 It seems that the most
important contribution made by these institutions will remain limited and
indirect.330
324 The Bretton Woods institutions have been responsible for imposing the neo-
liberal policy regime which Friedman (2000, pp. 101 ff.) refers to as the Golden
Straitjacket, see Branson (2002b, p. 137). See generally for the impact of the World
Bank and OECD on globalization Pinto (2005, p. 491).
325 Pillay (2004, pp. 494–5, 518); Branson (2002b, pp. 137–8); Tavis (2002, p.
503).
326 Alston (2002, p. 815); Howse (2002, p. 651); Pillay (2004, pp. 513–15).
327 Petersmann (2002, p. 621).
328 Branson (2002b) at fn. 74; Pillay (2004, pp. 518 ff.). See Tavis (2002, p. 503)
on steps that would bring the UN closer to being a global government in the economic
sense. See the careful optimism of Wallace (2002, pp. 141, 151–2).
329 Branson (2002b) at fn. 75. Fort and Schipani (2002, p. 431) accept that corpo-
rate governance should not be aimed merely at profit for shareholders but they ulti-
mately baulk at the idea that this can be established by international legislation.
Although there is some democratic basis for these institutions because many of their
members are democratic states, see Tavis (2002, p. 512).
330 See above on anti-fraud initiatives text next to fn. 243 ff. and more generally
below, 6.2.1.
300 Globalization and private law
conventional unified system of law that contains consistent legal norms for
regulating corporations in a globalized world is unlikely to develop in the fore-
seeable future. Limited adoption of a range of global CSR models and nodal
convergences of corporate law could contribute to creating frameworks for
legal regulation of MNCs, but their influence will remain weak. Moreover, it
seems unlikely that international laws and institutions can be created to fill this
void. Yet, there are alternative regulatory systems that will go some way
towards constraining abuses by global corporations.
If competition occurs, it may mean that the best norms will receive greater
acceptance. However, the corporate law experience of competition of norms
has not necessarily been positive. In the United States incorporators are free to
choose the state where they want to charter corporations. States receive an
income from those corporations that are chartered in their jurisdictions. They
have an incentive to compete for charters. Although some have touted this as
a competitive system that has allowed for the best-possible rules to be
provided by supply and demand, it seems that the better view is that it has led
to a so-called race to the bottom. Weak regulation of corporations often has
attracted the greatest number of charters. The problems that exist in the US
will be magnified if it is applied in a world that is much more diverse and
where regulation outside corporate law is much weaker.336
Many stakeholders are affected by the activities of corporations.
Competition of norms will work only if there is careful scrutiny of the ideal
norms by a broader range of stakeholders that are affected by them and if their
preferences can be reflected in a balanced manner in the final decision to
choose norms.337 Managers have the strongest incentive to investigate and
consider the rules that will apply to a corporation if it is incorporated in partic-
ular jurisdictions. They are mostly responsible for selecting legal advisers
who, in turn, help them to select jurisdictions that are most favourable to their
interests. Other stakeholders are not informed or powerful enough to counter
the influence of managers. Competition of rules therefore allows managers to
exploit the situation in their favour.
Furthermore, it is unlikely that information will be properly evaluated in
order to ensure optimal choices. The cost of obtaining information and
comparing norms will be so high that those who choose norms will not make
rational choices.338 First mover advantages may favour particular rules even
though they are not rationally the best rules.339 Culture often pre-determines
choices to such an extent that it is unlikely that incorporators will choose the
optimal system.340 Some systems may lose ground for reasons that have noth-
ing to do with their real ability to meet the needs of the stakeholders to the
corporation.
336 See generally Cary (1974, p. 663); Baysinger and Butler (1985, pp. 431, 433);
Fischel (1982b, p. 913); Kahan and Kamar (2002, p. 679); Bebchuk and Hamdani
(2002, p. 553); Roe (2003, p. 588); Smits (2007, p. 1199); Barnard (2000, p. 57).
337 See McCahery (2006, pp. 160–61) who accepts that competition will not work
where externalities are generated.
338 Smits (2007, p. 1200) admits to these difficulties but proposes some solutions
although it is doubted whether they will properly address the concerns.
339 Coffee (1999, pp. 703–4).
340 See the comments of McCahery (2006, pp. 178–9) on the role of culture in the
EU.
302 Globalization and private law
Michaels and Jansen correctly show that our conception of law requires some
reconsideration because of globalization.345 Globalization transfers a
measure of control from governments to global governance networks.346 The
conduct of MNCs will not only be constrained by impersonal markets but
also by the pressures of several overlapping governance networks.347 As the
recent financial crisis has indicated, market exchanges depend on trust. This
may be enhanced by regulation and it may be in the interest of MNCs to
participate in the creation of regulation.348 States will not be irrelevant in
these networks. They will participate in them but will not be able to exercise
their traditional state powers.349 International institutions will not replicate
the state when it comes to global activities but they will be significant actors
in these networks. Moreover, private participants that include non-govern-
mental organizations and MNCs will themselves be involved in many of
them, while MNCs will be the target of others.350 The forces that constrain
MNCs in the globalized world will reflect the complex interconnectedness
produced by globalization.351
So whence will these networks derive their validity and legitimacy?352 The
justification for the legal rules of many nation states is founded in a democra-
tic process. But for networks there are no simple answers to this question.353
345 See Michaels and Jansen (2006, pp. 868 ff.); Smits (2007); Twining (2007).
346 Tavis (2002, p. 489) see above, text next to fn. 27 ff. See also Backer (2007)
who speaks of ‘autonomous systems for the regulation of economic behaviour’ and see
the description of actors pp. 1748 ff. and the reliance of the sociological idea of func-
tional differentiation and polycentric globalization, see also pp. 1768, 1776, 1783. See
also Backer (2008b, pp. 508–9) on regulation of functionally distinct communities and
the engagement of regulation at the interstices of lawmaking.
347 Fort and Schipani (2002, pp. 425–6).
348 Backer (2007, pp. 1747–8).
349 Backer (2007) at fn. 5 with reference to Teubner (1993, p. 41), see also Backer
above pp. 1768–74, 1777 on structural coupling and the limits of private networks, see
also pp. 1761–2 on the role of the state in private networks and Backer (2008, pp.
522–3).
350 Tavis (2002, pp. 489, 501 ff., 532–3, 538, 543).
351 See Michaels and Jansen (2006, pp. 869–71) and their analysis of privately
created orders; Friedman (2000, pp. 286 ff.).
352 See Michaels and Jansen (2006, pp. 873–7) who discuss different bases for
determining validity of law in the time of globalization. See also Special
Representative Report (2007) at par. 92 on the standards which grievance mechanisms
must meet.
353 Michaels and Jansen (2006, p. 880) who state that it will be difficult to justify
non-state law that is not rooted in closed communities, although they state at p. 881 that
private law was never completely justified in democracy because of the role of tech-
nocrats in developing it.
304 Globalization and private law
354 See also Tavis (2002, p. 539) and his discussion of the ISO (further analysed
below, text next to fn. 522) and the Council of Chemical Associations.
355 Tavis (2002, pp. 509–11, 543). See the basis upon which divisions are made
in the Special Representative Report (2007) at par. 6.
356 Available at www.ilo.org/public/english/employment/multi/download/decla-
ration2006.pdf, accessed 30 November 2008. It has been updated twice, in 2000 and
2006.
357 See OECD, Guidelines for Multinational Enterprises (1999), available at
www.oecd.org/daf/cmis/cime/mneguide.htm, accessed 15 April 2009.
358 See how they are applied by institutional investors in the UK: Williams and
Conley (2005, p. 542).
359 Special Representative Report (2008) at paras 85, 98–9; Special
Representative Report (2007) at par. 50.
360 Special Representative Report (2007) at par. 49 notes that these instruments
are widely referenced by governments and business and that they may crystallize into
harder norms.
361 (1992) at www.worldbank.org, accessed 4 May 2009.
Globalization and corporate law 305
that are to be applied by host states and investors. These norms again are
voluntary but they have gained broad acceptance.362 They are also bolstered
by the support of the International Finance Corporation, which is a member of
the World Bank group.363 It sets performance standards which borrowing
corporations must meet and these include human rights elements. Depending
on the type of project, impact studies may be required for financing. These
studies will include the human rights impact of a project. An ombudsman who
may hear complaints has been appointed to ensure that borrowers comply with
the standards.364
Next, although attempts of the United Nations to create hard law in this
area are inauspicious, they have contributed substantially to the establishment
of soft law.365 In the wake of certain misadventures by MNCs, especially their
involvement in the overthrow of a Marxist government in Chile, the UN
became interested in these undertakings. The UN General Assembly estab-
lished the Commission as well as an Information and Resource Center on
Transnational Corporations in 1974.366 This Commission prepared the draft
UN Convention on Transnational Corporations (UNCTC), but it came to
naught in the mid-1990s.367 The draft Convention attempted to determine the
relationship between MNCs and host countries.368 Yet, it was too ambitious
and was stymied by cold war and north–south conflicts.369 The UNCTC was
362 Wallace (2002, pp. 145–6). Ratner (2001, p. 537) who also notes that the
World Bank considers the human rights impacts of its projects.
363 See the IFC website, www.ifc.org, accessed 3 May 2008.
364 Special Representative Report (2007) par. 51.
365 Tavis (2002, p. 502) calls the contribution of the UN and related institutions
‘modest’.
366 The Commission was established pursuant to the Economic and Social
Council (ECOSOC) Resolution 1913, UN ESCOR, 57th Session Supplement No. 1A,
at 31, UN Document E/5570/Add. 1 (1974). The Information and Research Center was
established by ECOSOC Resolution 1908, UN ESCOR, 57th Session Supplement No.
1, at 13, UN Document E/5570 (1974). See Rubin (1976, p. 73). See Ratner (2001, pp.
456–7) for an analysis of the political atmosphere in which these developments took
place.
367 Final draft version, UN Document E/1990/94 (June 1990). For the develop-
ment, see also Draft United Nations Code of Conduct on Transnational Corporations,
UN Document E/C.10/1982/6 (5 June 1982). For the subsequent revision, see Draft
United Nations Code of Conduct on Transnational Corporations, UN Document
E/1983/17/Rev.1 (1983), reprinted United Nations Draft International Code of
Conduct on Transnational Corporations International Legal Materials, 23 (1984), 626.
See Branson (2002b, p. 136); Rubin (1995, pp. 1275, 1285–6); Redmond (2003, pp.
96–7).
368 Hillemanns (2003) par. 2.
369 Mensch (2006, p. 263).
306 Globalization and private law
other normative frameworks of corporations, the ILO, the OECD, and civil
society organizations.384 The Norms also acknowledged that they had to be
subject to review as new issues emerged.385
When it came to enforcement and implementation a wide-ranging scheme
was proposed.386 The Norms were to form the basis of all contractual relations
of MNCs and were to be adopted as the internal rules of corporations.387 They
foresaw a comprehensive scheme for monitoring the activities of MNCs on an
international level. Monitoring was to involve the UN, other national and
international governance networks, civil society and MNCs themselves.388
Monitoring and implementation was to require ‘amplification and interpreta-
tion of intergovernmental, regional, national and local standards with regard to
the conduct of transnational corporations’.389 The UN’s human rights bodies
were to monitor implementation by imposing reporting duties on states and
adopting general comments and recommendations interpreting obligations.
The structures of the UN Commission on Human Rights were to use the
Norms and other relevant international standards to raise concerns about the
activities of MNCs. The Sub-Commission and its working group were also to
monitor compliance and establish best practice by receiving information from
civil society and giving MNCs an opportunity to respond.390 It was further
envisaged that MNCs would have to establish transparent monitoring and
reporting mechanisms, establish proper and formal avenues for complaints
about compliance with the Norms, do periodic assessments of the human
rights impacts of their activities with reference to the Norms and, to the extent
of their resources and abilities, do similar impact assessments before pursuing
new projects or initiatives. Assessments that exposed inadequate compliance
were also to set out plans for remedial action or reparations.391 States were to
establish and reinforce legal and administrative frameworks to ensure that
corporations implement the Norms.392 Corporations were to use due diligence
to ensure that their activities did not constitute human rights abuses and that
they did not benefit from abuses.393 They were to pay reparation to persons
who were adversely affected by breaches of the Norms.394
These Norms accordingly would have established a very robust frame-
work for regulating MNCs. However, it became apparent that powerful coun-
tries and business regarded the Norms as unpalatable. In 2004 the Norms got
into difficulty.395 The imposition of direct duties on MNCs was labelled in
contravention of international law. The Norms were criticized for being in
some respects vague, being unnecessarily strict and blurring the distinction
between states and corporations as promoters of human rights.396 A process
was set in motion by the Human Rights Commission which meant that the
Norms were shelved. They became a statement of voluntary, aspirational
goals.397 It could be argued that they have an enhanced status as they received
considerable support from sectors of civil society.398 However, the failure to
adopt the Norms meant that the UN only continued with more modest
attempts to regulate the activities of MNCs and the Norms have had a limited
impact on further developments.
In the wake of the failure of the Norms, the much more business-friendly
Global Compact (GC) became the most important instrument for constraining
the conduct of MNCs. The UN Secretary-General introduced the idea to
promote corporate social responsibility in 1999399 and this proposal culmi-
nated in the GC. It became operational on 26 July 2000. It is less ambitious
than the Norms when it comes to an enforcement strategy but it emphasizes
participation to a greater degree than the Norms. Although promoted by the
Secretary-General, endorsed by the General Assembly of the UN and
supported400 by six participating UN agencies,401 the GC is a multi-stake-
holder initiative. Governments, NGOs, and corporations are also involved in
it as actors.402 A corporation commences participation by sending a letter to
the Secretary-General expressing its support for the compact.403 The corpora-
tion is then expected to change business practices, publicly advocate the GC
and publish an annual communication on progress in its annual or sustain-
ability report.404
The GC focuses on leadership and it specifically requires those who lead
corporations to subscribe to the principles of the GC.405 The GC prescribes ten
principles. However, compliance with these principles is not formally moni-
tored or policed.406 The GC operates on two levels. It aims to get participating
corporations to internalize the values of the compact and facilitate collective
Through these mechanisms, the GC not only provides an avenue for dialogue
between business and civil society, it also hopes to ‘weave a web of values around
the global marketplace’, foster cooperation between business and civil society, and
identify and promote the adoption and dissemination of best practices.411
In summary, the main features of the global compact are that it is reflexive,
interactive and self-referential.412
Naturally, the GC has met with mixed reactions. Some see it as a great step
forward for global regulation of MNCs. It can allow business to retrieve its
moral purpose.413 It stresses the importance of embedding values rather than
enforcing them.414 Others criticize its voluntary nature and lack of strict
enforcement mechanisms in the traditional legal sense. It allows corporations
to promote their images without truly improving their conduct,415 creates the
impression that respect for human rights is not peremptory,416 gives MNCs
407 UN Global Compact, How the Global Compact Works: Mission, Actors and
Engagement Mechanisms (2003), p. 2; The Global Compact, Report on Progress and
Activities July 2002–July 2003 (2003), 27 both available at www.globalcompact.org,
accessed 20 November 2009.
408 UN Global Compact Office, How the Global Compact Works: Mission, Actors
and Engagement Mechanisms (2003), p. 5 available at www.globalcompact.org,
accessed 20 November 2009.
409 The Global Compact, Report on Progress and Activities July 2002–July 2003
(2003), 33–9, available at www.globalcompact.org, accessed 20 November 2009; Kell
(2003, pp. 35, 39–41).
410 The Global Compact, What is the Global Compact? (2008), 4 available at
www.globalcompact.org, accessed 20 November 2009; Global Compact, The Global
Compact: A Network of Networks 2 and Guidance for Networks (2005), available at
www.globalcompact.org, accessed 20 November 2009; Kell and Levin (2003, p. 151).
411 Oshionebo (2007, p. 16), the passage quoted by him comes from Ruggie
(2002, pp. 297, 301).
412 Oshionebo (2007, p. 16). See generally on self-referential networks for
constraining MNCs, Backer (2007, pp. 1779–80).
413 Ruggie (2002, p. 297); Williams (2004, pp. 755, 761).
414 See above, text next to fn. 219, on the importance of this argument in justify-
ing CSR.
415 See Oshionebo (2007, p. 18) on the limits of shaming as an enforcement tool.
416 Ibid.
312 Globalization and private law
Weissbrodt and Kruger (2003, pp. 915–16); Weissbrodt (2006, pp. 135, 136–7) espe-
cially p. 139 and Weissbrodt (2008, pp. 373, 386). On the criticism voiced against the
approach in the Norms, Weissbrodt (2005, p. 67).
434 Redmond (2003, pp. 71–2); McLoughlin (2007, pp. 159–60); Pillay (2004, p.
521); Special Representative Report (2007) at par. 19 ff. stresses that direct application
is only relatively certain in the context of criminal liability, see par. 44; Special
Representative Report (2006) at paras 61–4 with reference to Sosa v Alvarez-Machain
542 US 692, 732 (2004). These issues are controversial and there are arguments either
way. The approach of Ruggie was heavily criticized by some NGOs; for a good
summary of all arguments, see Duruigbo (2008). See the more expansive approach of
Ratner (2001) but see also his explanation of the more conventional position pp. 466,
490–92. See also Backer (2006, p. 369) who foresees a role for the International
Criminal Court in terms of the Norms.
435 Special Representative Report (2006) at paras 66–8. See Weissbrodt (2008, p.
385) and his analysis of the same argument in Ruggie (2007, pp. 819, 826). See also
the comments of Duruigbo (2008, pp. 50, 74); see also Duruigbo’s list of arguments for
and against extending liability for MNCs 64ff. Backer (2006, pp. 293, 378–84) states
that it could cause end-running by corporations.
436 Special Representative Report (2006) at par. 69.
437 Special Representative Report (2008) at par. 7.
438 Special Representative Report (2008) at paras 8–9, 17.
439 Special Representative Report (2008) at paras 9, 17.
440 Special Representative Report (2008) at para. 50. See Backer (2007, p. 1784)
on the diminished role of states in international relations.
Globalization and corporate law 315
are not prevented from doing so, once certain basic requirements are met.441
Moreover, it is confirmed that states have a duty to provide protection against
human rights abuses that affect persons in their territories or jurisdictions,
albeit that they may decide what measures are appropriate for complying with
these duties.442 Yet, the Special Representative laments that states do not find
the correct mix of policy measures in order to protect human rights against
infringement by MNCs.443 Much can be done to strengthen a corporate culture
that is favourable to human rights, for instance by considering it in determin-
ing criminal liability; moreover government policies must be aligned to ensure
that they are aimed at preventing human rights abuses by business.444 The
Special Representative also proposes a network to give guidance to states that,
in many ways, mirrors the engagement methodologies of the GC.445
Next, the Special Representative is at pains to avoid saying that corpora-
tions have or should have obligations in international law. He merely refers to
their ‘responsibilities’ to respect human rights.446 These responsibilities exist
independently from and do not merely mirror the responsibilities of states.447
The responsibility to respect human rights is a ‘baseline responsibility’.448 To
respect rights means not to infringe on the rights of others, that is, to do no
harm.449 Not doing harm is not the same as being passive.450 What is required
is due diligence. This concept describes the steps that a corporation must take
to become aware of and address human rights impacts.451 The Special
Representative emphasizes the importance of having human rights policies,
integration of policies, embedding of respect for human rights452 and the role
which the GC can play in taking this process forward.453 The corporate
responsibility to respect human rights includes avoiding complicity in human
rights abuses. It is not possible to define complicity clearly, but there is an
obvious relationship between complicity and due diligence. Corporations can
avoid complicity by employing the due diligence process.454
Finally, the Special Representative considers access to remedies and griev-
ance mechanisms. The current patchwork of mechanisms is incomplete and
flawed. It must be improved in its parts and as a whole.455 As part of a state’s
duty to guard human rights it must establish effective grievance mechanisms.
Treaty bodies increasingly recommend that states investigate and punish
human rights abuses and provide redress when it affects persons within the
jurisdiction.456 These state-based mechanisms may be judicial or non-judicial.
Judicial mechanisms are often under-equipped, especially when it comes to
claim for redress in the home country of a corporation, where that harm was
suffered abroad. The Special Representative proposes that states should
strengthen judicial capacity to hear complaints against corporations that oper-
ate or are based in their territories.457 Non-judicial mechanisms can involve
state-sponsored mediation services or national human rights institutions. Some
proposals for improving the effectiveness of these mechanisms are made.458 A
list of requirements which non-judicial grievance mechanisms should meet in
order to be credible and effective is given.459 The benefits and flaws of non-
state grievance procedures established by corporations, multi-stakeholder
networks or industry initiatives and financiers are then investigated.460
Ultimately, two proposals are made for the improvement of all grievance
and enforcement procedures. Lack of knowledge about the range of remedies
can be improved by means of education.461 Intended and unintended limita-
tions in the competence and coverage of mechanisms should be addressed by
appointing a global ombudsman, although clear requirements will have to be
met before such a proposal can be implemented effectively.462
The Special Representative’s views can be subjected to a number of criti-
cisms. He has been attacked from some quarters for not being bullish enough
about the obligations of MNCs to respect human rights and for his hostility
towards the Norms.463 His observations about the ‘responsibilities’ of corpo-
rations involve a careful play with words. Moreover, few of the real difficul-
ties that exist in this area of law are decisively and conclusively resolved in his
reports. His failure to answer the question as to whether home states have a
duty to protect human rights against abuses committed abroad by locally regis-
tered corporations is understandable but problematic. His proposal for a global
ombudsman is unlikely to succeed.
Yet, his approach also has various strengths. His views seem to be quite
balanced and are devoid of obvious and strong ideological preferences. They
represent respect for the perspectives of corporations as well as those that are
affected by their actions. He makes a number of highly innovative and useful
proposals and observations while avoiding some of the pitfalls of his predeces-
sors. His emphasis on embedding respect for human rights in corporations fits
well with the approach of CSR and the GC. The greatest strength of his work
is that he proposes a comprehensive and creative framework by which the
activities of MNCs can be addressed internationally. His proposals require a
long-term strategy for promoting human rights against abuses by MNCs.464 For
those who impatiently try to provide protection against corporate human rights
abuses this may be difficult to stomach, but there appear to be few short-cuts.
463 See Letter to Professor John Ruggie of 25 October 2007 (final version) and
his response, Letter of John Ruggie to Julieta Rossi, Director ESCR-Net of 15 October
2007, Misereor & Global Policy Forum, Problematic Pragmatism: The Ruggie Report
2008: Background, Analysis, Perspectives (June 2008), to which Ruggie responded in
a letter dated 2 June 2008. All are available at www.business-humanrights.org except
the letter of 25 October 2007 which can be found at www.escr-net.org (both were
accessed on 10 May 2009). See also above, fn. 433 for the criticisms of one of the
drafters, David Weissbrodt.
464 Special Representative Report (2007) at par. 4.
465 Special Representative Report (2007) at par. 63 expressly does not regard this
as a form of soft law. See Backer (2007, p. 1747) on the effects of globalization on the
importance of self-regulation although he probably overstates the case. He refers to
codes as a ‘system of law developing side-by-side with traditional law’.
466 Special Representative Report (2006) at paras 31–8; Mensch (2006, p. 251);
Backer (2007, pp. 1752–6). See Ratner (2001, p. 532) and Redmond (2003, pp. 87–8)
on the origins of these codes. See the description of Backer (2008b, pp. 508 ff.) of the
code of the MNC GAP.
467 Broader networks may promote these codes in dynamic ways, see Backer
(2007, pp. 1780–82).
318 Globalization and private law
479 See Mensch (2006, pp. 252–3) who also mentions Responsible Care, see their
website, www.responsiblecare-us.com, accessed 8 May 2009; see also Blair et al.
(2008, pp. 339 ff.) on this initiative; Redmond (2003, p. 88); OECD Directorate for
Financial, Fiscal and Enterprise Affairs, Codes of Conduct – an Expanded Review of
their Contents TD/TC/WP(99)56/final (May 2001), available at http://appli1.oecd.org/
olis/1999doc.nsf/LinkTo/td-tc-wp(99)56-final, accessed 7 June 2009; OECD,
Corporate Responsibility: Private Initiative and Public Goals (2001), available at
www.oecd.org.dataoecd/46/36/2075173.pdf, accessed 7 June 2009; Backer (2008b, p.
511).
480 Tavis (2002, pp. 507–8). It has also produced the Principles for Responsible
Globalization, which are addressed at governments. See generally the Caux Round
Table website at www.cauxroundtable.org, accessed 3 May 2009.
481 Special Representative Report (2006) addendum 4.
482 See the International Council of Toy Industries website, at www.toy-icti.org,
accessed 4 May 2009. See also the Code of Conduct subscribed to by member associ-
ations that is aimed at consumer protection.
483 Worldwide Responsible Accredited Production website, at www.wrapap-
parel.org, accessed 4 May 2009. See Blair et al. (2008, pp. 340–41).
484 Electronic Industry Code of Conduct website, at www.eicc.info, accessed 4
May 2009.
485 The Equator Principles website, at www.equator-principles.com, accessed 4
May 2009; see above, text next to fn. 361ff, for an analysis of the IFC principles.
320 Globalization and private law
abroad. In the United States Congresswoman Cynthia McKinney lost her seat
before she could complete the promotion of her Corporate Code of Conduct
Act for the United States. It would have required US MNCs to have codes of
conduct and would have imposed liability for breaches of such codes.496
496 Corporate Code of Conduct Act HR 2782 107th Cong (2001), available online
at www.theorator.com/bills107/hr2782.html; see also www.aph.gov.au/senate/
committee/corp_sec_ctte/reports.htm, both accessed on 14 December 2008.
497 See generally Bunn (2004, p. 1265).
498 Above, text next to fn. 27 ff.
499 McLoughlin (2007, p. 157).
500 Special Representative Report (2006) at paras 14–16 where the reasons for
this are discussed. For the dynamic functioning of networks, see Backer (2007, pp.
1780–82); Backer (2008b, pp. 519–20).
501 Backer (2007, pp. 1756–8). See the standards of CERES below, text next fn.
515.
502 See also Dickerson (2004, p. 534) on the role of NGOs.
503 See Ratner (2001, pp. 447, 526–8).
322 Globalization and private law
504 Backer (2007, pp. 1762–7). See also the description of GAP’s engagement
with NGOs, Backer (2008b, pp. 509 ff.).
505 Ibid.
506 Friedman (2000, p. 208). See also above on the role of NGOs such as the
Jubilee movement, fn. 58.
507 Tavis (2002, pp. 510–11) on the legitimacy of these organizations.
508 Ratner (2001, p. 533).
509 See Backer (2006, pp. 386–8) on the role of NGOs in terms of the Norms as
initially envisaged.
510 See Tavis above, fn. 507.
511 See also Blair et al. (2008, p. 347) on the argument that they may undermine
regulation because governments cede regulatory powers to them.
512 Ratner (2001, p. 533). Friedman (2000, p. 355) states that it is important to
determine how globalization can be used rather than how it can be torn down.
Globalization and corporate law 323
513 Special Representative Report (2007) at par. 5, although the definitions used
for different networks will sometimes differ from those in the report.
514 Apart from those initiatives mentioned here see also the Ethical Trading
Initiative (ETI) which is a multi-stakeholder initiative requiring participating compa-
nies in the UK to comply with a base code. It does not monitor compliance but requires
reporting and it engages with companies that do not comply, see www.ethicaltrade.org,
accessed 14 November 2008, and see Special Representative Report (2007) addendum
4. The Global Sullivan Principles have their origin in the anti-apartheid movement but
were drafted by a Core Committee of business leaders in consultation with the Rev.
Leon H. Sullivan. They were launched in November 1999 at a special ceremony at the
UN, attended by the Secretary-General, see www.thesullivanfoundation.org/gsp/
default.asp, accessed 14 November 2008, and Mensch (2006, p. 254). See also gener-
ally Blair et al. (2008, p. 342).
515 Coalition for Environmentally Responsible Economics, at www.ceres.org,
accessed 4 May 2009; Mensch (2006, pp. 253–4); Zondorak (1991, p. 457).
324 Globalization and private law
FLA has concluded that monitoring is not enough and it has developed strate-
gies to build capacity that will ensure compliance with acceptable practices in
developing countries.518
Several networks are focused on establishing standards for socially respon-
sible conduct and certifying compliance with those standards.519 The Forest
Stewardship Council (FSC) comprises corporations and representatives in the
forestry profession and timber trade, environmental and social groups and
indigenous community organizations. It sets principles and criteria for forest
management. The principles concern environmental, labour and human rights
issues. The FSC provides for the certification of compliant participants by
accredited, independent certification organizations. Such participants may
then label products to show that they have been produced or handled by
compliant firms. Many large retailers in the US support the FSC and it has
even gained the attention of the investment community.520
Social Accountability International is an NGO that has created a social respon-
sibility standard, the Social Accountability or SA 8000. The standard was devel-
oped consensually by representatives of trade unions, human rights organizations,
academia, retailers, manufacturers, contractors, and consulting, accounting, and
certification firms. It focuses on labour standards. Certification for compliance
with the standard is given on the basis of an audit done by accredited auditors.
Certified firms are subject to semi-annual reviews and revisits.521
The International Organization for Standardization (ISO) develops and
publishes international standards. Its members are the standards bodies of
states and they enforce compliance standards. It therefore is slightly different
from the other multi-stakeholder networks listed here. Many of its members
are state institutions but it is not an international institution in the strict sense
as some of these members are private organizations set up by national part-
nerships of industrial organizations, while business plays an important and
direct role in standard-setting. It has set highly authoritative environmental
and quality management systems standards and is currently involved in setting
a social responsibility standard ISO 26000.522
This brief survey illustrates how the benefits of governance networks can
be strengthened if the different types of actors in them organize their interac-
tions formally.523 These tightly knit networks allow for direct engagement by
parties who are concerned with the activities of MNCs. They enable MNCs
and other stakeholders to learn from one another and benchmark their actions
against best practice. Where other stakeholders, such as NGOs, participate in
establishing a network with MNCs, fine balances must be struck that do not
undermine the legitimacy or interests of those participants or the ability of
MNCs to make profits. The need for the participation of NGOs and other
participants in order to legitimate a network means that they cannot simply be
pushed around by MNCs. As a result, the norms laid down by these networks
generally are quite strict. With the exception perhaps of the Voluntary
Principles, they provide for expansive monitoring, verification and enforce-
ment procedures. Moreover, the centralization of norm creation establishes a
more consistent and intelligible regulatory framework. However, these
networks also suffer from many of the flaws that have already been high-
lighted in the context of self-regulation and NGOs. MNCs will be able to
capture some of these networks. Despite some centralization, the multitude of
frameworks still creates fragmentation. Most networks are still voluntary and
the pressure to participate in them will sometimes remain weak.524
www.iso.org/iso, accessed 3 May 2009. See Blair et al. (2008, pp. 329 ff., 343–4) on
ISO 8000 and 9000. See Mayer (2002, p. 644). See also Tavis (2002, p. 507) on the role
of private entities in standard-setting. See above, fn. 169, on sustainability reports and
the Global Reporting Initiative.
523 Special Representative Report (2007) at par. 59.
524 Backer (2006, p. 318) and the complaints about volunteerism.
525 Special Representative Report (2006) at par. 70.
526 See generally on the value of soft law, Weissbrodt (2008, p. 389) and Ruggie
(2007, pp. 819, 839–40).
Globalization and corporate law 327
hensive international legal regime for this purpose will be established any time
soon. Developed nations are loath to give up their economic and political
power and developing nations will regard the imposition of obligatory norms
as a form of imperialism.527 The political compromises that will have to be
made to develop laws for this purpose may create more problems than solu-
tions. The failure of the Norms shows that attempts to create international
norms before the political and social environment is ready do not take efforts
to regulate MNCs forward but rather set them back.
However, as governance networks suffer from many flaws and are not self-
sufficient, some situations will require the centralized and formal weight of
hard law. The real trick will be to determine the situations in which governance
networks should be replaced by hard law and to establish how these networks
can be supported by hard law. In this process, care must be taken to ensure that
valuable elements of soft law and governance networks are not destroyed by
inappropriate, rigid hard laws.528 Law can learn much from the social experi-
ments that have been conducted through these initiatives. Ideally, there should
be fluidity between hard and soft law initiatives.529
A modest proposal is to create international rules that would improve the
information that MNCs provide about the impact of their activities and to
provide for institutions that monitor MNCs on the basis of such information,
without trying to lay down specific international norms. The governance
networks would then have to distil the information and mobilize for corrective
actions. The difficulties of establishing specific norms would be side-stepped.
This approach relies heavily on the ability of markets to discount and balance
the perspectives of different stakeholders about acceptable behaviour and the
ability of other actors such as states and NGOs to ensure that those markets
function effectively. It appears that markets can achieve this to some extent.530
However, this type of strategy has its limits. Perhaps it should be perceived as
one of the starting points in the development of a more comprehensive regu-
latory regime for MNCs.531 Transnational efforts to establish critical mass on
norms and enforcement mechanisms should continue alongside developments
such as this. The proposals of the Special Representative of the UN Secretary-
General, John Ruggie, are invaluable because they start to develop realistic
frameworks for taking the broader regulation of MNCs further.
7 CONCLUSION
Although increased globalization is unlikely to give birth to a major conver-
gence between the laws of different states or the establishment of strong inter-
national rules, it will probably promote a conversation between the local rules
and the global initiatives that constrain the conduct of corporations. There is
considerable tension between attempts to regulate MNCs in states and supra-
territorially.532 Backer, referring to the position of the United States, distin-
guishes the national corporate law discourse focused on economics, and to
some extent politics, where corporate law is regarded as a form of private
organization, and the transnational and international corporate law discourse
that is focused on social responsibilities and human rights.
For people in these fields of law and policy, the traditional forms of nation-centered
normative corporate regulatory systems, centered on the economics of shareholder
wealth maximization, hold no special magic. Instead of economics and private law,
public law and public accountability provide a better model for corporate regula-
tion, which can be articulated as policy, and eventually as law. At this level, the
domestic law framing of the issue of corporate social responsibility – the extent to
which the corporation may or must take into account the effects of its actions on
others, and the fundamental limitation of ultimate corporate purpose to sharehold-
ers – is increasingly rejected. State governance and corporate governance theory
conflate in norm making outside the nation-state.533
Backer proposes that the ‘power to control the authoritative discourse over
corporate characteristics and responsibilities could be wrested from the insti-
tutions controlling the national discourse’.534 This discourse has thus far given
birth mainly to soft law norms. The national discourse will remain of impor-
tance to corporate law, but the global perspective requires a rethink of national
approaches to corporate law. The focus on human rights and the social impact
of corporations on the global stage illustrates that the contractarian approach
to corporations is based on gross oversimplifications. MNCs have power and
therefore must be submitted to public law regulation that will in some ways
mirror regulation of state power.535 In countries with strong political institu-
tions the contractarian approach could perhaps make some sense because their
activities will be constrained outside of corporate law. But MNCs also operate
in environments where institutions are weak. Here the constraints imposed by
networks.540 There is a need to find the right mix of attainable and workable
soft and hard law and to understand how and when soft law should migrate
into hard law. Perhaps developments in the area of corporate law can
contribute to broader attempts in other areas of law that are aimed at under-
standing the concept of soft law and its relationship to hard law.
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‘myopic’.
Globalization and corporate law 331
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Sosa v Alvarez-Machain 542 US 692, 732 (2004).
Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 (HCA).
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Websites
Procedural issues
10. Civil procedure in a globalizing
world
Remco van Rhee
1 INTRODUCTION
At the start of the 21st century, the world’s civil procedural landscape is
diverse. The main origin of diversity can be found in the historical differences
in the approach to civil litigation in the Common Law and Civil Law families
of procedural law.1 However, even within these families the differences have
become considerable, and it has been stated that because of that, the
dichotomy between Civil Law and Common Law may soon have lost much of
its relevance.2 An obvious example of major differences within one family can
be seen when comparing England and Wales (shortly ‘England’ below) and the
United States of America. In England, the jury has nearly disappeared from
civil trials,3 whereas the right to a jury trial is a constitutional right in the US.4
Also, the role of pre-trial discovery (currently known as disclosure in England)
is radically different in these two jurisdictions. Whereas discovery in the US
is extremely extensive, at least from a European perspective,5 stringent limits
have been introduced in England by the Woolf Reforms (1999).6 At the same
time, it seems that occasionally the differences between jurisdictions from
343
344 Globalization and private law
13 Examples from the 16th century may be found in Van Rhee (1997, pp. 313
ff.). See also Van Rhee (2000, pp. 589–611).
14 Jongbloed (2005, pp. 69–95).
15 Heirbaut (2009, pp. 89–117).
346 Globalization and private law
16 Van Rhee (2003, pp. 217–32). The use of the term ‘approximation’ is based
on the title of the Report of the Storme Group, discussed below (Storme, 1994).
17 Montesquieu (2006) Chapter 1: ‘Les formalités de la justice sont nécessaires
à la liberté.’
18 Montesquieu (2006) Chapter 1: ‘Mais le nombre en pourrait être si grand,
qu’il choquerait le but des lois mêmes qui l’auraient établis.’ See also Van Rhee et al.
(2008), especially the contributions by Cadiet (pp. 271–301) and Asser (pp. 323–33).
19 Van Rhee (2008, pp. 11–25).
20 On the history of the French Code of Civil Procedure, see Wijffels (2008, pp.
5–73).
21 A caveat is necessary here. Franz Klein (1854–1926), the ‘father’ of the 1895
Austrian Code of Civil Procedure, which would herald a new era of civil procedure in
Europe (see below), claimed in the 1890s that even though the French Code of Civil
Procedure did not grant the French judge far-reaching case management powers, such
powers were, in practice, exercised by him without a legal basis in the Code. See Klein
(1891, p. 25): ‘Dem französischen Rechte ist der Richter in Prüfen, Glauben und
Urteilen eine lebendige Person mit zu achtenden intellektuellen und moralischen
Bedürfnissen, nicht ein blutleerer Judicaturapparat, wie sich ihn das gemeine Recht
ausgesonnen hat. Diese so unscheinbare Wahrheit … erklärt, warum in Frankreich freie
Instructionstätigkeit des Richters ohne besondere gesetzliche Anerkennung bestehen,
die allercursorischste Normierung genügen kann.’ That claim echoes an observation
constantly made by French authors themselves writing on civil procedure from the
latter part of the 19th century onwards, though of course verifying the veracity of such
Civil procedure in a globalizing world 347
statements would require extensive research of the French case law and of day-to-day
practice during this period.
22 Oberhammer and Domej (2005, pp. 118–23).
23 Klein asked the following rhetorical question: ‘Sollte das “Processeigentum”
stärker als alles sonstige Privateigentum sein, und muss erst gesagt werden, welches die
öffentlichen Interessen sind, mit denen die uns so selbstverständliche schrankenlose
Disposition über den Processinhalt collidirt, und was sich dann gerade aus der
Eigentumsanalogie ergibt?’, Klein (1891, p. 17).
24 See Fasching (1988, pp. 97 ff.) and van Caenegem (1973, p. 97).
25 Van Rhee (2008, pp. 11–25); Stürner (2005, pp. 226–7).
26 Van Rhee (2005a, p. 23).
348 Globalization and private law
30 In this respect the Doing Business Reports of the World Bank are of interest.
Part of the comparison made by the World Bank concerns the national justice systems
of the various economies (181 in total in the 2009 Report). See the chapter on enforc-
ing contracts in the 2009 Report, pp. 49–53 (the report is available at http://www.doing-
business.org/, last consulted June 2009).
31 See, e.g., the various proposals for harmonization in Storme (1994).
350 Globalization and private law
32 Storme (1994).
33 ALI/UNIDROIT (2006). Another example is the Código Procesal Civil
Modelo para Iberoamérica (1994). The text may be found at the website of the Centro
de Estudios de Justicia de las Americas (http://cejamericas.org/, last consulted April
2009). I will not discuss various initiatives as regards Arbitration and the Hague
Conventions on civil procedure in the present chapter.
34 See Art. 3 European Community Treaty (ECT).
35 Storskrubb (2008, pp. 1–3, 78).
Civil procedure in a globalizing world 351
In the determination of his civil rights and obligations or of any criminal charge
against him, everyone is entitled to a fair and public hearing within a reasonable
time by an independent and impartial tribunal established by law. Judgment shall be
pronounced publicly but the press and public may be excluded from all or part of
the trial in the interest of morals, public order or national security in a democratic
society, where the interests of juveniles or the protection of the private life of the
parties so require, or to the extent strictly necessary in the opinion of the court in
special circumstances where publicity would prejudice the interests of justice.
The case law of the European Court of Human Rights on Article 6 has been
instrumental in laying down the minimum requirements each national proce-
dural regime of the Member States should meet. On the basis of this case law,
it has appeared that Article 6 prescribes the following guarantees:36
1. access to justice37
2. a fair hearing (trial), which includes38
a. the right to adversarial proceedings
b. the right to equality of arms
c. the right to be present at the trial
d. the right to an oral hearing
e. the right to a fair presentation of evidence
f. the right to a reasoned judgment
3. a public hearing, including the public pronouncement of judgment
4. a hearing within a reasonable time
5. a hearing before an independent and impartial tribunal established by law.
litigation and the admissibility of the parties as witnesses.39 These effects are
also important within the context of the European Community, since all
Member States are parties to the ECHR and because Article 6 ECHR and the
case law based on it are part of the acquis communautaire40 of the European
Community.41
Even though Article 6 ECHR has had a harmonizing effect, this is not
necessarily the aim of this Article: it only aims at laying down some funda-
mental guarantees. In actual fact, the need for harmonization for a group of 47
European countries42 that are rather diverse may not be felt as urgently as
within the context of an economic entity such as the European Community.
This is not surprising, taking into consideration that even within the European
Community harmonization of procedural law is a controversial issue. In actual
fact, apart from the fundamental procedural principles of Article 6 ECHR that
should be observed in all Member States, the harmonization that has been
achieved in the European Community is only focused on international cases,
leaving purely national cases outside the discussion (see below).
Within the context of the European Community, Article 65 (jo 61) of the
Treaty Establishing the European Community (ECT), introduced by the Treaty
of Amsterdam in 1999, is of utmost importance from a civil procedural point
of view.43 It states that:
when necessary for the proper functioning of the internal market, aimed at ensuring:
(a) the mutual recognition and enforcement between Member States of judgments and
of decisions in extrajudicial cases;
(b) the cross-border service of judicial and extrajudicial documents;
(c) the compatibility of the rules applicable in the Member States concerning conflict
of laws and of jurisdiction;
(d) cooperation in the taking of evidence;
(e) effective access to justice;
(f) the elimination of obstacles to the proper functioning of civil proceedings, if neces-
sary by promoting the compatibility of the rules on civil procedure applicable in the
Member States;
(g) the development of alternative methods of dispute settlement;
(h) support for the training of the judiciary and judicial staff.
3. Notwithstanding paragraph 2, measures concerning family law with cross-border
implications shall be established by the Council, acting in accordance with a special
legislative procedure. The Council shall act unanimously after consulting the European
Parliament. The Council, on a proposal from the Commission, may adopt a decision
determining those aspects of family law with cross-border implications which may be
the subject of acts adopted by the ordinary legislative procedure. The Council shall act
unanimously after consulting the European Parliament. The proposal referred to in the
second subparagraph shall be notified to the national Parliaments. If a national
Parliament makes known its opposition within six months of the date of such notifica-
tion, the decision shall not be adopted. In the absence of opposition, the Council may
adopt the decision.
44 Article 67 ECT lays down the procedure for the adoption of legislation under,
amongst other Articles, Article 65. See Storskrubb (2008, pp. 47–8).
45 I will not discuss the European Judicial Network here, nor judicial training
and some other measures. See Storskrubb (2008, pp. 233 ff.).
46 A Regulation is a legislative act which becomes immediately enforceable as
law in all Member States simultaneously. Regulations can be distinguished from
Directives, which need to be transposed into national law by the Member States.
354 Globalization and private law
Article 65 sub b deals with the conflict of laws and will not be discussed in
detail here, since the topics that have so far been brought under this heading
are not directly relevant for civil procedural law. The two most important
topics that may be mentioned are a Proposal for a Regulation of the European
Parliament and of the Council on the law applicable to contractual obligations
(Rome I) [COM(2005) 650 final – Not published in the Official Journal] and
the Regulation (EC) No. 864/2007 of the European Parliament and of the
Council of 11 July 2007 on the law applicable to non-contractual obligations
(Rome II).
Article 65 sub c has given rise to the following European legislation:
Directives may give rise to different national legislative solutions in order to reach the
aim of the Directive. All Regulations and Directives mentioned in this chapter can be
found on the website of the European Union: http://europa.eu/ (last consulted April
2009).
Civil procedure in a globalizing world 355
47 Storskrubb (2008, pp. 39 ff., 272–3). The European Small Claims Procedure,
for example, was originally envisaged as also being applicable in purely national
disputes. At a late moment in the drafting process, however, it was decided that it would
only cover international cases, leading to a discrimination as regards purely domestic
cases in jurisdictions where the national rules are less favourable than the European
rules. See Storskrubb (2008, pp. 220–21).
356 Globalization and private law
ment in countries that have higher quality rules.55 At the same time, the author
held that if only minimum rules were given, it might be questioned whether
this would lead to harmonization or approximation.56 Additionally, Professor
Lindblom observed that several of the rules suggested by the report were
rather general and often did not address the real problems in the area of civil
procedural law. He demonstrated this, amongst other things, by mentioning
that the report contains only one article (Article 5) concerning witnesses, an
article which in his view stated the obvious, since it only lays down that ‘[a]ny
person duly summoned in accordance with the law of a Member State to give
evidence before a court of that State shall be under a duty to appear before that
court and give evidence.’57
Although the criticism may be justified, it should be remembered that the
Storme Report was the first of its kind and, consequently, should not be judged
too harshly. One of its achievements is that it has been a source of inspiration
for other projects, notably a project initiated by the American Law Institute
and later also sponsored by Unidroit, that is, the Principles of Transnational
Civil Procedure.58
American Law Institute adopted the project62 and in 2000 Unidroit joined.63
This gave rise to a change, since Unidroit did not feel that civil procedure rules
of some detail would be acceptable to different cultures. It was of the opinion
that it was better to develop a set of general Principles.64 Finally, only the
Principles were adopted by the American Law Institute and Unidroit, although
it was felt that the rules represent a possible example of implementation of the
Principles.65
The final draft of the Principles of Transnational Civil Procedure dates from
2004. It was published in 2006 by Cambridge University Press in English and
French.66 The publication also includes a commentary.
According to their drafters, the Principles must be seen as best practices
and a benchmark for national procedures.67 Consequently, they are not neces-
sarily only aimed at international cases, but may also be used within a national
context, for example in national reform projects (see below). They are a blend
of elements from the Civil Law and the Common Law:68 discovery, for exam-
ple, is limited in nature,69 but this is corrected by a liberal approach towards
shifting the burden of proof.70 Additionally, the hearing of the case is concen-
trated, but this does not necessarily mean that there should only be a single
trial.71 The hybrid character of the Principles may also be viewed slightly less
favourably. According to Neil Andrews, ‘[e]verywhere the restraining hand of
the Civil Law is visible and robust Common Law tendencies are curbed.’72
The Principles aim in the first place at transnational commercial litiga-
tion.73 This approach was adopted in order to increase the chances that the
Principles would be acceptable to lawyers from various jurisdictions. After all,
in commercial litigation there is no jury and the existence of the jury in civil
cases is a major issue separating the US from most other jurisdictions. By only
focusing on commercial litigation, the whole subject of the jury could be
Consequently, there is a need for initiatives in this area, since the current situ-
ation is said to diminish international trade and investment. In the opinion of
the drafters, the existing international conventions (Hague Conventions)77 on
civil procedure and related topics are not an answer to the problems, since they
only address aspects of civil litigation (such as commencement and recogni-
tion) and say little about the actual procedure to be followed.78 From this
perspective, they may also be highly relevant from a European Community
perspective, as many of the existing European Regulations on civil procedure
show the same limitations as the Hague Conventions (see above).
Even though the Principles aim at transnational commercial litigation, this
does not mean that they are without use in other fields. On the contrary, they
may, for example, (1) influence the further development of the rules of
national and international arbitration (to which they are themselves
indebted),79 (2) be used by national law reformers as an example of world-
wide accepted guidelines and standards of procedural law,80 and (3) be
consulted by national judges in the interpretation of national procedural rules
and international conventions that are formulated in a way which leaves the
necessary room for judicial interpretation.81 Finally, they may (4) be used as
standards against which foreign judgments and arbitral awards may be
measured when a decision has to be taken as regards their recognition and
enforcement.82
The procedural model suggested by the Principles aims to avoid favouring
national parties in international litigation.83 It is a flexible model, which
accommodates all of the existing national procedural models. Nevertheless,
the Principles suggest a preferred model.84 This model consists of three stages:
the pleading stage (statements of case), an interim stage (scheduling) and a
final stage (main hearing).85 This model is popular in many European coun-
tries such as Germany, England and Spain. Stürner calls it the ‘main hearing
model’.86 The Principles assume an active judge87 and in this respect they take
the German–Austrian model as an example (see above).88 This active stance
of the judge means that the court is also responsible for determining issues of
law, including foreign law.89 On the other hand, the Principles lay down that
the court is never permitted to introduce new facts not previously advanced or
at least briefly mentioned by the parties to litigation.90 It is, however, again the
court’s responsibility to ensure that justice is administered promptly,91 a
responsibility that is to some extent shared with the parties.92 There is no
notice pleading like in the US, which means that the assertion of detailed facts
and the submission of exactly specified means of evidence during the plead-
ing phase is required.93 All contentions of the parties should be considered by
the court.94 The principle of finality is adhered to.95 The Principles do not
follow the American rule as regards costs.96 However, they do recognize the
amicus curiae.97 Appeal is not a new hearing, but limited to re-evaluating the
5 FINAL REMARKS
The comparative study of civil procedure has gained considerable importance
in the 20th and 21st centuries. Currently, it is a major topic on the international
legal research agenda. This has been demonstrated in the present chapter by
showing the importance of comparative civil procedure in national reform
projects, and as regards competition between national civil procedure systems
and attempts to harmonize civil procedure on a regional and even global scale.
In each particular case, the impetus for comparative study is internationaliza-
tion or globalization, that is, the integration and/or interdependence of
economic, political, and cultural systems, either across the globe (globaliza-
tion) or on a more local level (internationalization, for example at the level of
the European Community). Without such integration and/or interdependence,
comparative civil procedure would have been intellectually challenging but
not directly relevant for legal practice. As has been demonstrated, this is very
different in our modern, globalizing world, where legal practice demands an
ever-growing attention to the approach to litigation of the various procedural
systems from across the globe.
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Albers, P. (2009), ‘Quality Assessment of Courts and the Judiciary: From Judicial
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Andrews, N. (ed.) (2003), English Civil Procedure: Fundamentals of the New Civil
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Andrews, N. (2009), ‘A Modern Procedural Synthesis: The American Law Institute and
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Asser, W.D.H. (2008), ‘Deformalisering en case management in Nederland’, in C.H.
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Cadiet, L. (2008), ‘Déformalisation et case management en France’, in C.H. van Rhee,
D. Heirbaut and M. Storme (eds) (2008), The French Code of Civil Procedure
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Fasching, H.W. (1988), ‘Die Weiterentwicklung des österreichischen Zivilprozessrechts
im Lichte der Ideen Franz Kleins’, in H. Hofmeister (ed.), Forschungsband Franz
Klein (1854–1926): Leben und Wirken, Vienna: Manz, pp. 97 ff.
Freudenthal, M. (ed.) (2007), Schets van het Europees Civiel Procesrecht, Deventer:
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Heirbaut, D. (2009), ‘Efficiency: The Holy Grail of Belgian Justice? Civil Procedure
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Van Rhee, C.H., D. Heirbaut and M. Storme (eds) (2008), The French Code of Civil
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civil/final/index.htm, last consulted April 2009.
PART VI
367
368 Globalization and private law
This issue, the influence of fundamental rights in private law, raises funda-
mental questions, not only of a dogmatic and technical nature (How can these
rights, which often stem from a public law tradition, be applied in private law?
What does this mean for the structure of private law?1) but also in a legal-
political sense (What are the implications for the role of the (national) legisla-
tor and of the (national or transnational) judiciary? Can fundamental rights
provide sufficient guidance ex ante to influence the behaviour of private
parties? What does their influence imply for the certainty for private law
parties?) Furthermore, the influence of fundamental rights in private law is by
its nature not a strictly national matter; it is almost by definition a cross-border
issue, related to globalization in several ways.
On the one hand fundamental rights may lead private law to new horizons
and they may provide incentives for more fair solutions in specific cases. They
may very well furnish tools for development of a more just society.2 On the
other hand their influence challenges the structure both of private law and of
the national legal order in relation to its international legal environment.
In theory, private law should be able to apply, protect and enforce funda-
mental rights of private persons adequately, as it is aimed at and suited for
regulation of relationships and conflicts between private parties. The tradi-
tional accent in private law on matters of patrimonial rights and dogmas may
yet be a cause of an underrating of the fundamental rights at stake. In this view
the influence of fundamental rights in private law is merely a matter of a
‘border struggle’ between private law and public law: are fundamental rights
sufficiently recognized in private law?
One can, however, also notice a much more substantial influence of human
rights or fundamental rights on private law. For example in countries such as
South Africa and in parts of Eastern Europe and Latin America, the substan-
tial and global moral pressure of international organizations, such as the
United Nations, and (other) international politics give rise to the question of
whether private law is indeed sufficiently able to accommodate what is neces-
sary for liberalization and for protection of human rights. In this respect the
international public order seems to overwhelm the entire structure and devel-
opment of private law.
It is, however, not only the material influence of the development of protec-
tion of personality interests in public law that has fuelled the debate concern-
ing fundamental rights in private law. A major contributory factor has, at least
in Europe, been the development of multi-level jurisdictions, which has had its
effect on private law as well. The area of private law is thus no longer left to
1 See on this van der Walt (2003, p. 183) and Smits (2003, pp. 57 ff.).
2 See for South Africa, for instance, Mostert (2003, p. 119).
Fundamental rights in private law 369
2 FOUR ILLUSTRATIONS
Four remarkable cases in Europe may serve to illustrate the influence of
human rights in private law disputes. These cases do not only represent differ-
ent areas of private law (contract, tort and property), but they also reflect
different jurisdictions: the German constitutional court (Bundesverfassungs-
gericht), the European Court of Justice, the European Court of Human Rights,
and a domestic (Dutch) civil law court.
a young mother without a job. This meant that she would most likely not be
able to free herself from this debt until the end of her life.
The case must be seen against the background of the hard line of the
Bundesgerichtshof with regard to personal surety, according to which it upheld
the principle of the binding character of a promise. The Bundesgerichtshof did
not relent in this case either, as it upheld the unilaterally binding character of
the surety.4
The German constitutional court, the Bundesverfassungsgericht, however,
judged that the Bundesgerichtshof had with its decision violated Article 2,
section 2 of the Grundgesetz, which guarantees the right to self-determination.
This right includes the right to private party autonomy, which was, according
to the Bundesverfassungsgericht, offended as the daughter had not been able
to decide freely about the closing as well as the content of the contract. In typi-
cal cases in which one of the contractual parties is in a structurally weaker
position and the consequences of the contract are very severe for that party, the
Grundgesetz requires according to the Bundesverfassungsgericht that private
law provide remedies. As a consequence, the Bundesgerichtshof judged in a
new decision that the surety was contrary to good morals and should thus be
declared void.5
This case shows that private law can be substantially influenced by funda-
mental rights within the domestic legal order. It is not only an illustration of
this substantial effect but also of the influence of a constitutional court, which
put an end to a discord in the policy of two different chambers of the
Bundesgerichtshof.
nancy.6 Further, the Court holds that the directive does not permit an employer
to revoke his consent to a female employee’s return to work before the end of
a parental leave period on the ground of error as to the pregnancy of the
employee under domestic law.
This case illustrates the strong influence of EU law regarding equal treat-
ment on private law issues,7 as it shows that domestic rules on error may not
be applied in the – according to private law – usual sense, but should be
strictly interpreted according to EU law.
A strong impulse for the influence of fundamental rights in private law is the
jurisdiction of the European Court of Human Rights in Article 1 of the First
Protocol to the European Convention on Human Rights (ECHR) regarding the
right to the peaceful enjoyment of one’s possessions.8 Due to the extensive
interpretation of this article by the Court, especially with regard to the concept
of ‘possession’, its influence on private law issues has increased substantially.
This article has thus become a crowbar in many cases, varying from classical
private law questions regarding property and ownership even to matters of
personal injury. Illustrations of the latter are the cases in the Netherlands in
which the application of statutory rules on limitation of liability with regard to
passenger transport is concerned.
An example of a successful claim with reference to Article 1 of the First
Protocol to the ECHR is the judgment of the Amsterdam Court of Appeal in
the case of a young woman who suffered severe injuries (she lost both legs)
due to the fact that the Dutch railway company (Nederlandse Spoorwegen)
had not maintained adequate safety standards.9 The Court held that the appeal
to the statutory limitation of liability of Article 110 (section 1) of Book 8 of
the Dutch Civil Code (which holds a maximum liability of 137 000 euros in
case of death or personal injury) had to be set aside, as this appeal was consid-
ered unacceptable according to the standard of reasonableness and fairness
(good faith). The Court was of the opinion that the fact that limitation may
serve a legitimate purpose (controllability of the entrepreneurial risk and
insurability) did not alter the fact that this case lacked a fair balance between
the general interest on the one hand and the protection of individual rights on
the other hand. In this context, the Court also considered it relevant that a
rather old limit up to a modest sum, non-indexed for inflation purposes, had
been used (which the Court thought was even ‘quite low’), whereas, the
tendency in international treaties showed an increase in amounts of limits. The
Court thus declared the appeal to the statutory limitation unacceptable.
Remarkably, in later cases the Court of The Hague and the Court of Arnhem
declared similar appeals unacceptable only to a certain level of the limitation.
The Court of The Hague independently ‘raised’ the limitation to 200 000
euros10 and the Court of Arnhem thought, referring to the compulsory insur-
ance amount for motor vehicles, a limit of 1 million euros adequate.11
These cases illustrate that fundamental rights may serve as a rich source for
arguments in private law issues where statutory law can be considered to be
no longer up to date. They also throw light on the problem that arises once
such a specific statutory rule is put aside. This, of course, is not a matter that
is specific to fundamental rights, but it can nevertheless be an important result
of judicial activism in this area of the law.
Perhaps one of the most exciting issues of the influence of fundamental rights
in private law is the question of whether domestic regulation of ownership of
land can be set aside with an appeal to Article 1 of the First Protocol of the
ECHR. This was at stake in the case of Pye Ltd v United Kingdom, where Pye
had been deprived of his land by the operation of domestic rules (the Land
Registration Act 1925 and the Limitation Act 1980) on adverse possession.
Pye, a property developer, had bought land in 1975 and 1977. At that time the
legal regime included the risk of losing the interest in the land after 12 years
of adverse possession (this rule was abandoned in 2002). Pye had in 1983
agreed on a grazing licence on behalf of his neighbour Graham. Graham tried
to continue that agreement in 1984, but Pye refused, because he wanted to start
building on the property soon. Graham’s attempts to contact Pye were not
answered and Graham kept using the fields for his cattle. In 1997 Graham
placed a ‘warning’ in the Land Registry that no longer Pye but Graham was
entitled to the land.
The House of Lords decided – reluctantly – that, according to the old Land
Registration Act, Graham was entitled to the land.12 Pye brought the case
before the European Court of Human Rights and in 2005 the Court decided, in
the smallest possible majority, that United Kingdom law was not in line with
Article 1 of the First Protocol of the ECHR, because it did not offer Pye any
compensation for the deprivation of his property right.13
Because of the fundamental character of the issue, the case was then
brought before the Grand Chamber of the European Court of Human Rights,
which in 2007 ruled that the law on adverse possession was not in violation of
Article 1 of the First Protocol of the ECHR, because the interference with
Pye’s right should not be regarded as a deprivation of possession, in which
case compensation is mandatory, but should rather be considered as a ‘control
of use’ of the land. The Court found that the result of the control of use by the
Land Registration Act (the loss of property by Pye) did not upset the fair
balance between the aim of the interference and the means employed.14
These cases stress that, although the European Court of Human Rights
appears in the end to be reluctant to interfere with domestic regulation of prop-
erty of land, this area of domestic law, which could be considered at the heart
of private law, is not ‘safe’ from the influence of the Court.15 They illustrate,
therefore, not only that this area is not immune from the influence of funda-
mental rights but also the, be it cautious, willingness of the European Court of
Human Rights to interfere with domestic law in this domain.
12 Pye v Graham [2003] 1 A.C. 419. See on the English decisions also Zwalve
(2005, p. 336).
13 ECHR 15 November 2005, nr. 44302/02 (Pye v United Kingdom I).
14 ECHR 30 August 2007, nr. 44302/02 (Pye v United Kingdom II).
15 See on the influence of fundamental rights on property rights in South Africa
for instance van der Walt (1995) pp. 169 ff.; van der Walt (2002, pp. 254 ff.); van der
Walt (1999).
374 Globalization and private law
fundamental rights should influence the outcome of private law disputes. The
first question will be addressed shortly in this section; the ‘added value’ of the
fundamental rights perspective in private law will be discussed in the next
section.
An essential question in the debate about the influence of fundamental
rights in private law is how an appeal to fundamental rights may be interpreted
in private law issues. In other words, how can fundamental rights, which seem
to spring from a public law tradition, fit into the structure of private law
debates? For a large part, this question reflects the distinction between the
direct and indirect effects of fundamental rights,16 but even if one prefers the
approach of indirect effect, different modes of influence of fundamental rights
in private law can be distinguished.17
First, several fundamental rights have found their way into specific private
law regulations, such as the law regarding labour contracts or medical treat-
ment, which in many respects contain ex ante assessments by the legislator
with regard to individual rights and freedoms. In these cases the private law
rules can be said to have been influenced ab initio by fundamental rights. The
influence of human rights from an extra-national source seems most problem-
atic for this category of private law rules, because it immediately appeals to
the issue of supremacy.
Secondly, fundamental rights may find their way through general clauses in
the private law domain, such as unlawfulness, negligence, good morals or
good faith.18 Private law thus offers several structures such as ‘open norms’
which may serve the influence of fundamental rights in the process of balanc-
ing of interests.
Thirdly, private law occasionally seems to allow a specific role for a funda-
mental right in forming a basis for an action in court. For example, a funda-
mental right may, then usually under the flag of a personality right (German
Persönlichkeitsrecht, Dutch persoonlijkheidsrecht), be recognized as a ‘private
law right’ as such.19 The Dutch Hoge Raad has, for instance, spoken of the
general personality right underlying basic rights, such as the right to privacy, the
right to freedom of thought, conscience and religion, and the freedom of expres-
sion. This shows that fundamental rights may constitute a source for solutions in
a private law context, even if they have not been articulated in detail in consti-
tutional rights and without the need to address formal effect issues.
16
See for an early strong advocate of direct effect Nipperdey (1950, pp. 121–8).
17
See on the state of affairs with regard to direct and indirect effects recently
Mak (2007, pp. 46 ff.).
18 See Heldrich and Rehm (2001, pp. 113 ff.).
19 See on this role of persoonlijkheidsrechten Lindenbergh (1999, pp.
1665–1707) and Nehmelman (2001).
Fundamental rights in private law 375
longer has sovereignty in issues of private law. National private law is influ-
enced not only by the explicit conversion of human rights treaties into national
law, but also by a more ‘sneaking’ influence of human rights through judg-
ments in which national courts apply fundamental rights with international
origins in specific local private law matters. The above described examples
show that human rights may offer inspiring viewpoints that offer new hori-
zons. In individual cases this may lead to favourable solutions on an ad hoc
basis, but on a more fundamental level it raises questions about the role of the
national legislator in relation to the international judiciary. Who is competent
with regard to which issue and who decides eventually what the law is?
Human rights may also be from another perspective relevant in relation to
globalization. In a globalizing world multinational corporations and other
international organizations more and more seem to define the normative
agenda that affects national citizens even in their most local setting. This raises
the question of the democratic standard of such rules. From this perspective
fundamental rights can possibly serve as proper tools to set aside rules that
lack a sufficient democratic basis. They can, from an ‘internal’ or national
perspective, serve as guards for the democratic standard of legal rules.
Both of the above described functions show the ability of private law to
host fundamental rights as well as the flexibility of private law to apply these
rights. The influence of fundamental rights in private law is however, also in
relation to globalization, far from unproblematic.
In the first place fundamental rights usually consist of rather ‘raw’ legal
material that offers little guidance.26 This makes the application as well as an
outcome of the application of fundamental rights in private law situations
unpredictable and it can therefore affect legal certainty. This also raises the
question of whether the judiciary can sufficiently deal with the application of
fundamental rights in individual cases and which cases are more suitable for
the legislator to decide. The Dutch example of the strongly diverging amounts
of the limits of liability in transportation cases (the court of The Hague chose
200 000 euros; the Arnhem court thought 1 million euros to be adequate) illus-
trates that some issues would better be covered by the legislator in order to
avoid arbitrariness.
In the second place the application of fundamental rights by an interna-
tional court or institution may impose values that exceed or are contrary to
locally approved values. The universality of fundamental rights seems to a
certain extent to vary according to their nature as well as to the location of
their application, and thus their weight may be valued differently in concrete
26 See for example on the already many different aspects of personal freedom
Marshall (2009).
Fundamental rights in private law 379
situations. For example, the right to life and freedom will probably be valued
as more fundamental than the right to economic development or the right to
equal opportunity,27 and the right to economic development will be valued
differently in varying economic situations.28 From this point of view the bene-
fit of the concept of universality of fundamental rights in relation to global-
ization – fundamental rights are so fundamental that they can and should be
applied everywhere and any time – may prove to be a drawback: the funda-
mentality of these rights can be challenged in all places, at all times and in
every specific situation.
8 CONCLUDING REMARKS
The development of fundamental rights in private law seems to be an inspir-
ing example of fundamental values presenting incentives as well as tools to
exceed traditional national structures of both private and public law.
Furthermore, the development of supranational jurisdictions, which have stim-
ulated the development of fundamental rights profoundly, has formed an
important aspect of globalization of the legal arena. In this respect fundamen-
tal rights have the characteristics of potentially successful carriers of legal
development in a globalizing legal order.
These characteristics, however, have their reverse side as well. As described
above, the development and influence of fundamental rights in private law
seems to a large extent dependent on the existence and power of supranational
jurisdictions. Furthermore, fundamental rights are, at least in their original struc-
ture, rather vague and undetermined, which makes their direct implementation
difficult. And, finally – this may be the most difficult characteristic – in a global
setting, the universality of fundamental rights may not be so self-evident. What
is considered fundamental, and which specific consequences this fundamental-
ity should have in a certain case, seems to a large extent to be dependent on the
region in which the question is raised. For instance, the right to equal treatment
of men and women may in several areas of the world be considered fundamen-
tal, but it is not at all obvious that this will, or perhaps should, lead to the
outcome of the earlier described case of Wiebke Busch wherever such a case is
brought before a court. Therefore, although fundamental rights are often
presented as carriers of universal values, their weight may be assessed differ-
ently in varying countries and cultures. It will be a serious challenge for the
global legal order to account for and deal with this fundamental problem.
REFERENCES
Banakis, S. (2005), ‘The Constitutionalisation of Private Law in the UK: Is There an
Emperor Inside the New Clothes?’, in T. Barkhuysen and S.D. Lindenbergh (eds),
Constititutionalisation of Private Law, Leiden/Boston: Martinus Nijhoff, pp.
83–96.
Barkhuysen, T., M.L. van Emmerik and H.D. Ploeger (2005), De
Eigendomsbescherming van Artikel 1 van het Eerste Protocol bij het EVRM en het
Nederlandse Burgerlijk Recht, Preadvies Vereniging voor Burgerlijk Recht,
Deventer: Kluwer.
Benson, P. (2001), ‘Equality of Opportunity and Private Law’, in D. Friedmann and D.
Barak-Erez (eds), Human Rights in Private Law, Oxford: Hart Publishing, pp. 201
ff.
Castermans, A.G. (2008), ‘De Burger in het Burgerlijk Recht’, inaugural lecture,
University of Leiden.
Clapham, A. (ed.) (1993), Human Rights in the Private Sphere, Oxford: Clarendon
Press, p. 134.
Ganten, T.O. (ed.) (2000), Die Drittwirkung der Grundfreiheiten, Berlin: Duncker &
Humblot.
Heldrich, A. and G.M. Rehm (2001), ‘Importing Constitutional Values through Blanket
Clauses’, in D. Friedmann and D. Barak-Erez (eds), Human Rights in Private Law,
Oxford: Hart Publishing, pp. 113 ff.
Hesselink, M.W. (ed.) (2002), The New European Private Law: Essays on the Future
of Private Law in Europe, The Hague/London/New York: Kluwer Law
International, pp. 177 ff.
Lindenbergh, S.D. (1999), ‘De Positie en Handhaving van Persoonlijkheidsrechten in
het Nederlandse Privaatrecht’, Tijdschrift voor Privaatrecht, pp. 1665–1707.
Loof, J.P. (ed.) (2000), The Right to Property, Maastricht: Shaker Publishing.
Mak, C. (ed.) (2007), Fundamental Rights in European Contract Law: A Comparison
of the Impact of Fundamental Rights on Contractual Relationships in Germany, the
Netherlands, Italy and England, Alphen aan den Rijn: Kluwer Law International,
pp. 46 ff.
Marshall, J. (ed.) (2009), Personal Freedom through Human Rights Law?,
Leiden/Boston: Martinus Nijhoff Publishers.
Mostert, H. (2003), ‘De Invloed van die Grondwetlike Eiendomsklousule op die
Eiendomskonsep in die Suid-Afrikaanse Reg’, in J. Smits and G. Lubbe (eds),
Remedies in Zuid-Afrika en Europa: Bijdragen over Privaatrecht en Constitutioneel
Recht in Zuid-Afrika, Nederland en België, Antwerp: Intersentia, p. 119.
Nehmelman, R. (ed.) (2001), Het Algemeen Persoonlijkheidsrecht, dissertation,
University of Utrecht; Deventer: W.E.J. Tjeenk Willink.
Nieuwenhuis, H. (2005), ‘Fundamental Rights Talk, An Enrichment of Legal Discourse
in Private Law?’, in T. Barkhuysen and S.D. Lindenbergh (eds),
Constitutionalisation of Private Law, Leiden/Boston: Martinus Nijhoff, pp. 1–8.
Nipperdey, H. (1950), ‘Gleicher Lohn der Frau fur gleiche Leistung’, Recht der Arbeit,
pp. 121–8.
Smits, J.M. (2003), Constitutionalisering van het Vermogensrecht, Preadvies
Nederlandse Vereniging voor Rechtsvergelijking no. 64, Deventer: Kluwer.
Smits, J.M. (2005), ‘Private Law and Fundamental Rights: a Sceptical View’, in T.
Barkhuysen and S.D. Lindenbergh (eds), Constitutionalisation of Private Law,
Leiden/Boston: Martinus Nijhoff, pp. 9–22.
382 Globalization and private law
1 INTRODUCTION
The starting point for most of the chapters in this book is that lawmaking, and
more particularly the development of private law, poses specific challenges in
the era of globalization. It is this particular influence of the broad globaliza-
tion phenomenon on private lawmaking that has been the central focus of the
contributions in this book. This chapter will take up the challenge to examine
this relationship between globalization and (private) lawmaking as far as the
area of environmental law is concerned.1
There are potentially so many interfaces between globalization and envi-
ronmental problems that one could easily write an entire monograph simply
dealing with this relationship. The aim of this chapter is, however, more
modest. I will merely attempt to identify the influence of environmental issues
on globalization and vice versa, from both a positive and a normative perspec-
tive. This will allow me to identify a few issues that play a role in this respect
and to indicate a few areas where the relationship between globalization and
environmental law could lead to tensions.2 Within the scope of this chapter it
is not possible to even attempt to resolve these tensions. One can at most try
to identify some core questions and analyse to what extent environmental
issues pose problems or challenges for globalization that may be different
from those in other areas discussed in this volume.
383
384 Globalization and private law
The central issue discussed in this chapter is hence how an analysis and
discussion of environmental pollution and the related environmental law and
policy issues can contribute to a quest for the relationship between globaliza-
tion and private law, which lies at the heart of the contributions to this volume.
1.2 Challenges
formulated concerning this particular relationship. In the latter case, the analy-
sis would involve arguing whether the influence of globalization on environ-
mental issues is desirable or not. In order to be able to provide such a
normative statement, one undoubtedly needs a point of reference.
To the extent that this chapter will provide such a normative indication
concerning the relationship between environmental problems and globaliza-
tion, the reference point used is usually the one provided by economics,
namely efficiency. I consider the economic approach to law generally, and to
environmental law and policy in particular, a very useful methodology not
only to structure particular questions but also to provide an indication of the
desirability of particular developments.8 With this, I of course do not argue
that efficiency is the only criterion that should guide environmental policy.
Other criteria such as the desire to provide a high level of environmental
protection may also play a role at the policy level, for example to examine the
influence of globalization on environmental issues. Still, in that particular case
economic analysis remains useful. It will for example allow indicating
whether the choice of a high level of environmental protection may come at a
(too) high price.
Even though it may in some cases be artificial to separate particular issues
along the lines suggested above, I will try to order the various questions that
could arise along those lines merely because I hope it may provide a frame-
work to structure the otherwise too complex and manifold questions. The
structure is hence merely chosen for reasons of presentation, not always for
contents.
This chapter will on the one hand discuss the relationship between global-
ization and environmental problems generally. However, since that may be
slightly too ambitious and complex, the major focus will, within the general
framework of this project, obviously be on the particular relationship between
globalization and environmental law and policy. Given the general focus of the
other chapters in this volume on the influence of globalization on private
lawmaking, there will equally be a strong focus on private law. However, given
the important influence of regulation in environmental law and policy, many
issues will deal with environmental regulation as well as with private law.
The goal of this chapter is to contribute to the general aim of this book, being
to identify particular challenges posed by globalization for environmental law
and policy. Hence, some of the more general questions, also indicated in the
introduction to this volume, concerning the relationship between globalization
and private lawmaking will be analysed within the specific context of envi-
ronmental problems.
One particular issue that will play a major role in the globalization debate
generally and hence also for environmental problems is to what extent there is
a ‘lawmaking beyond the nation state’. The challenges posed by this multi-
level governance lead to the institutional questions of who sets the agenda and
who takes decisions on the appropriate remedies for (also transboundary)
environmental harm.9 The general question, being to what extent a shift to
higher levels of governance leads to increasing problems of accountability and
legitimacy, will also be a crucial one in the environmental context. The goal of
this chapter will be to identify the specific issues and topics that arise in that
respect and perhaps to indicate in what direction solutions may be found.
An equally central focus of this chapter will be that, although many prob-
lems to be discussed in this contribution seem ‘global’ in the sense that, for
example, lawmaking emerges from international organization or deals with
transboundary environmental pollution, the problems often have effects for
individuals in private legal relationships. It is more particularly this relation-
ship between the various legal orders (international, regional (such as
European), state and local levels) that poses interesting questions for the way
environmental problems are dealt with in a specific context.
1.4 Structure
9 See for the various possible remedies for transboundary environmental harm
Nollkaemper (2008).
Multi-level governance of environmental harm 387
It seems like pushing at an open door to argue that one way in which environ-
mental problems have ‘gone global’ is that pollution problems have increas-
ingly become transboundary.10 To a large extent, this may be the result of an
increased awareness of the transboundary character of environmental pollu-
tion.11 Environmental pollution probably always had a transboundary charac-
ter, but perhaps it is also due to increased technological abilities that the
sources can be traced back to transboundary pollution.12 Originally, the focus
of environmental awareness was on the so-called point source pollution
coming from particular identifiable sources (such as emissions by factories),
in addition to problems for workers,13 leading to pollution of the soil and
(local) surface or ground waters. Most likely, already during the time of indus-
trialization, emissions by particular factories caused transboundary air pollu-
tion, but lacking technical abilities we were often prevented from tracking
down the sources of air pollution. In the second half of the last century, the
attention shifted as a result of an increasing awareness that many environ-
mental problems have a transboundary character. Hence, the focus increas-
ingly rested on problems caused by so-called long-range air pollution and acid
rain.14
From an economic perspective, the basic problem was that local industry
exported environmental pollution, leading, at least, to a de facto ‘externaliza-
tion’ of pollution problems. Economists have often argued that the reasons for
The probably more interesting issue is whether the relationship between glob-
alization and environmental pollution leads also to a lowering of environmen-
tal quality.23 The hypothesis would thus be that the increasing transboundary
character of pollution would lead not only to an increased mobility of pollu-
tants, but also to more pollution and hence to a lowering of environmental
quality. This corresponds with an intuitive feeling, launched for example by
the so-called anti-globalists, that free trade would be the enemy of environ-
mental protection.24 The intuitive appeal of this argument rests on the
economic notion referred to above that states will attempt to externalize envi-
ronmental pollution. If this externalization took place without remedies, more
trade would undoubtedly lead to more pollution.25 Another theoretical back-
ing for this statement is that states would increasingly engage in a competition
for ever lower environmental standards. Since states would desire to attract
industry, they would lower their environmental standards and, since compet-
ing firms would do the same, a prisoner’s dilemma would emerge, resulting in
an overall lowering of environmental quality. It is the well-known problem of
the race to the bottom.26
22 For an account of the first experiences, see Faure and Peeters (2008).
23 See for a strong statement that economic globalization negatively affects envi-
ronmental quality: Mander (2003); for a more nuanced picture with a review of the
empirical literature see Copeland and Taylor (2004, p. 7 ff.) (arguing inter alia that
increased trade and economic growth also raises environmental quality).
24 Here again, one notices that it is difficult to distinguish between environmen-
tal problems affecting globalization versus globalization influencing environmental
issues. The feeling is often that free trade agreements have a ‘chilling effect’ on domes-
tic regulation to protect public health and the environment, so Wirth (2007, p. 1).
25 For a critical perspective on this ‘transboundary externality’ argument in
favour of centralization see Revesz (1996).
26 For a critical perspective on this race-to-the-bottom rationale for centraliza-
tion see equally Revesz (1992).
Multi-level governance of environmental harm 391
A first question at the normative level is, to put it simply, whether the glob-
alization of environmental problems makes a globalization of law neces-
34 Many of those issues are also addressed in the contributions in Winter (2006)
and in Follesdal et al. (2008).
35 See Esty and Ivanova (2003).
36 See Van den Bergh (2000, pp. 88–92).
37 This could be done via a liability suit whereby a downstream victim of pollu-
tion sues upstream polluting firms. See on those possibilities Faure and Betlem (2008),
Boyle (2006) and Nollkaemper (1998).
38 This was decided by the European Court of Justice in the well-known ruling
in the Bier case (case 21/76 Bier v Mines de potasse d’Alsace, (1976) ECR 1735,
1748–9: ‘The expression “place where the harmful event occurred”… must be under-
stood as being intended to cover both the place where the damage occurred and the
place of the event giving rise to it. The result is that the defendant may be sued, at the
option of the plaintiff, either in the courts for the place where the damage occurred or
in the court for the place of the event which gives rise to and is at the origin of the
damage.’
39 See for a detailed discussion of these examples Faure and Betlem (2008, pp.
129–91).
40 Also advocated in many publications by Esty and Geradin. See inter alia Esty
and Geradin (1997, 1998 and 2001).
394 Globalization and private law
The first normative issue I dealt with was the relatively straightforward case
where the pollution crosses national borders. In that case, an argument in
favour of shifting powers to a higher legal order (hence: globalization of pollu-
tion leading to globalization of law) is not that difficult to make. But what if
the pollution is confined within national borders? There are still economic
justifications for shifting powers to a higher legal order (centralization and
eventually harmonization) even if the pollution problem remains local, but the
case is weaker. I discuss this from two separate angles.
43 See in this respect also Chapter 3 by Van den Bergh in this volume.
44 See supra 2.3.
45 In most of the accession treaties, the new Member States were allowed large
transition periods before they had to apply the environmental directives to the full
extent. See for example treaty concerning the accession of the Republic of Bulgaria and
Romania to the European Union, 21 June 2005, Official Journal L 157.
46 Schäfer (2006, p. 120) and compare Dunoff (2007, p. 88).
396 Globalization and private law
havens, the fear of losing local industry to competing states with lower envi-
ronmental standards could lead to a so-called ‘regulatory chill’, preventing the
state from imposing more stringent environmental standards, because of the
fear of a relocation.47
An argument which has sometimes been advanced in the EU in this respect
is that environmental standards should be harmonized in order to create a level
playing field for industry. The argument is sometimes referred to as the need
for a ‘harmonization of marketing conditions’.48 Law and economics scholars
have, however, powerfully shown that such a harmonization of marketing
conditions cannot justify the need for harmonization of laws. The simple
reason is that marketing conditions always differ (if not, there would be no
trade) and, even if all legal rules were harmonized, marketing conditions
would still be different because of totally other reasons (like differences in
labour costs, tax level, unionization of the labour force, availability of natural
resources and so on).49 The only relevant question is therefore whether these
differences constitute a barrier to interstate trade, which is seldom the case.50
52 Hence international obligations in the area of trade law are often considered
‘negative’ in the sense that they place constraints on the possibilities of national
governments to protect the environment or public health (Wirth 2007, p. 2).
53 For an interesting overview of the empirical and theoretical literature concern-
ing the environmental consequences of economic growth and international trade see
Copeland and Taylor (2004).
54 The General Agreement on Tariffs and Trade (GATT).
55 See Wirth (2007, pp. 2–3).
56 This has been based on the interpretation of the Commerce Clause, known as
the Dormant Commerce Clause, whereby the Supreme Court reasoned that State and
Local Laws had effectively created barriers to the interstate market in solid waste (see
for example Fort Gratiot Sanitary Landfill, Inc. v Mich. Dep’t of Natural Res., 504 U.S.
353 (1992); City of Philadelphia v New Jersey, 437 U.S. 617 (1978) and C&A
Carbone, Inc. v Town of Clarkstown, N.Y., 511 U.S. 383 (1994).
57 See generally on this case law van Calster (2002, pp. 482–5).
58 Case 302/86 Commission v Denmark, 1988 ECR 4607. See generally
Temmink (2000).
398 Globalization and private law
65 See generally the contributions in Boyle and Anderson (1996) and Heringa
(2006).
66 For a critical approach see Van Der Linde (2000).
67 See generally on this issue Porter (1999).
400 Globalization and private law
4.1 Institutional
happened. In the area of environmental law one can undoubtedly notice a trend
towards ‘institutional globalization’ in the sense of a shift of powers towards
higher legal orders. For example, in regional organizations like the EU one can
notice an increasing shift of competences, more particularly as far as environ-
mental law is concerned, towards the regional level. A recent research calcu-
lated that in the Netherlands approximately 66 per cent of Dutch
environmental law consists of EU environmental law.70 Hence, one simple
consequence of the shift of powers to a higher legal order (resulting from the
globalization of environmental problems) is that the national law of the nation
state is increasingly affected and influenced by law which emerges from
higher legal orders (in Europe, the EU).
Generally one can argue that the institutional globalization leads to a multi-
level governance (lawmaking at different levels of government). In addition to
environmental law generated by the nation state, one increasingly notices
lawmaking by:
A consequence of the shift of powers to these higher legal orders is that the
norms generated at these higher levels subsequently have to be transposed or
implemented (of course depending upon the national legal system) in national
law, which raises particular problems such as lacking compliance (with inter-
national environmental agreements)72 or lacking implementation (in the case
of EU law).73
4.2 Procedural
national levels), leads to specific procedural issues and changes in the way
traditional environmental law is applied. One can argue that this globalization
has changed the way in which the judiciary deals with (private) environmen-
tal law.74 One consequence of the fact that standard-setting powers have often
been shifted to higher levels (international or regional) is that the norms gener-
ated at these higher levels will also influence the adjudication in particular
cases under national law.75 Since the national law that the judge is applying in
the private legal relationships may often emerge from the international level,
questions can arise with respect to the correct transposition or implementation
of these norms in national law.76 The traditional tasks of the judge’s judicial
review have hence changed to include also the compatibility of national law
with international (and European) legal rules.77
This raises important questions with respect to the application and validity
of these international norms in private legal relationships. Of course the extent
to which these international norms can and do play a role in private legal rela-
tionships may well strongly depend upon the nature of the international legal
norms and the legal system in which they are applied. However, increasingly
one can notice that (in various forms and to various extents) these international
norms also affect the adjudication by national judges of private legal relation-
ships. One example is the fact that environmental human rights play an
increasingly important role in national environmental law as well. The
European Court of Human Rights has repeatedly accepted that particularly
serious cases of environmental pollution can constitute a violation of the right
to life.78
individuals (such as victims) can call on these higher legal norms or whether
they can be held against particular individuals (polluters). The history of envi-
ronmental human rights shows that these rights can provide individual victims
of environmental pollution with a direct right of action, even if not granted in
the national legal system.
The general rule in international law was that international legal rules only
bind states and not individuals. Therefore the District Court of Bonn could
decide that an individual victim (a farmer) of the Chernobyl incident could not
sue the Soviet Union for a violation of international law.79 There have been
situations, however, where norms of international law have played a role in
transboundary liability suits. An example is a suit brought by Dutch market
gardeners in the 1970s against the Mines de Potasse d’Alsace (MDPA) for
discharging too much salt into the river Rhine, so that they could not make use
of the water of the Rhine any more. In a remarkable judgment, the District
Court of Rotterdam held that, since no rule of national law could be found to
decide this case, it had to turn to unwritten international law and hence it
applied the principle that no state can use its territory for activities that cause
harm to another state.80 The District Court of Rotterdam thereby explicitly
refers to the well-known Trail Smelter Case, which applied the so-called good
neighbourliness principle.81 These cases show that the traditional boundaries
between international and national environmental law become increasingly
blurry, since in various ways the international level clearly influences adjudi-
cation at the national level as well.82
79 See for a discussion of this decision of the Civil Court of First Instance of
Bonn of 29 September 1987 Rest (1997, pp. 116–22) and Nollkaemper (1998, pp. 3–4).
80 District Court of Rotterdam, Nederlandse Jurisprudentie 1979, 113,
Netherlands Yearbook of International Law, 1980, volume 11, 326, and District Court
of Rotterdam, 16 December 1983, Nederlandse Jurisprudentie 1984, 341, Netherlands
Yearbook of International Law, 1984, volume 15, 471.
81 For a discussion of this Trail Smelter Arbitration see Bratspies and Miller
(2006) and Sands (2003, pp. 241–2 and pp. 318–19).
82 See Boyle (2007).
404 Globalization and private law
sions taken by the International Court of Justice (ICJ) and the International
Tribunal for the Law of the Sea (ITLOS) also show the reluctance of the
judges to come to firm decisions providing a final solution to the entitlements
of both parties. In many cases, the judges remarkably provide a few indica-
tions on how to resolve the dispute and then send the parties back to the nego-
tiation table.89
Hence, the shift towards a higher legal order and the globalization of envi-
ronmental problems has apparently also led to a different role of the judiciary
in resolving (transboundary) environmental disputes: rather than providing
firm and final entitlements (as is often the case in national environmental
disputes) in the transboundary context, the judiciary seems more cautious and
tends to stimulate bargaining between parties and consensual solutions.90
4.3 Contents
The question one could of course ask is whether the globalization of lawmak-
ing in the environmental area has also led to a convergence in the sense of a
harmonization of environmental law. Centralization in the sense of shifting
powers to a higher legal order should indeed not necessarily be equated with
harmonization. Theoretically the central authority could also decide to issue
differentiated environmental standards that take into account, for example,
differing local environmental conditions.91
However, the shift to a higher legal order (resulting from the globalization
of environmental pollution) has in almost all cases led to a harmonization of
lawmaking as well. Centralization has therefore in this environmental area
often in practice meant harmonization. Of course it may depend upon the
particular area and the international legal norm concerned whether there still
is room for differentiation. However, in most cases, whether the norm
89 See for example the so-called Southern Bluefin Tuna dispute which was dealt
with by the International Tribunal for the Law of the Sea (ITLOS) which prescribed in
a provisional measure inter alia ‘Australia, Japan and New Zealand should resume
negotiations without delay with a view to reaching agreements on measures for the
conservation and management of Southern Bluefin Tuna’ (for details see Romano,
2000, pp. 207–8).
90 Also in the Gabcikovo–Nagymaros dispute the International Court of Justice
held that the parties should ‘find an agreed solution that takes account of the objectives
of the treaty, which must be pursued in a joint and integrated way, as well as the norms
of international environmental law and the principles of the law of international water
courses’ (case concerning the Gabcikovo–Nagymaros project (1997) ICJ Reports 7,
para. 140–41). For a discussion see Sands (2003, pp. 469–77) and Romano (2000, pp.
246–60).
91 See inter alia Arcuri (2001).
406 Globalization and private law
5.1 Institutional
97 See Chapter 1 by Smits in this volume and see also Sand (2006). See also
Hooghe and Marks (2003). See on this concept also Jansen and Michaels (2008).
98 See for an analysis of the legitimacy deficit in the EU as well as for methods
to increase the democratic accountability in case of multi-level (environmental) regu-
lation Follesdal (2008).
99 See generally on accountability (of legal institutions) Bovens (2007).
408 Globalization and private law
100 See for the nuclear accidents Trebilcock and Winter (1997) and for marine oil
pollution Boyd (2002, 2003), Wang (2007), Verheij (2007) and Hendrickx (2007).
101 See the sources quoted in the previous footnote.
102 See on this struggle between the different interests in the coming into being
of the maritime liability conventions Wang (2007, pp. 197–241).
Multi-level governance of environmental harm 409
international conventions, more particularly because this would serve its inter-
ests.103
Originally, this also provided a limitation on the liability of the operator of
the nuclear power plant, but later the regime changed, as a result of which the
Price-Anderson Act is much more favourable today than the international
regime: substantially higher amounts for compensation are generated (roughly
ten billion US dollars in the US regime versus one billion in the international
regime) and public funding in the US regime is totally excluded.104 A similar
story could be told as far as the liability for the oil pollution risk is concerned:
instead of joining the international conventions, the US created the Oil
Pollution Act which, again, is much more favourable (in the sense of no limits
on the liability and higher amounts of compensation) than the international
regime.105
103 The US strongly lobbied in favour of the Paris Convention; at the same time
the US created for the nuclear risk in 1957 the Price-Anderson Act (see for details Van
den Borre (2007)).
104 See Faure and Van den Borre (2008, pp. 219–87).
105 Wang (2007, pp. 197–241).
106 See Faure (1998, pp. 169–75).
410 Globalization and private law
influence its contents.107 This general problem of the lack of democratic legit-
imacy of international lawmaking has of course often been mentioned and, as
was just shown, plays a role in environmental cases as well.108
These normative solutions are obviously not new. One can now increas-
ingly notice that in more recent environmental treaty regimes there is indeed
more transparency and a greater stakeholder involvement. It is the first
remedy, implying that when pollution problems do not cross national borders
there may be strong arguments in favour of decentralization rather than
centralization, that seems to be the most difficult one to be implemented in
practice. This may, to some extent, be due to the fact that bureaucrats in inter-
national organizations (and regional ones like the EU) of course also have a
strong interest in continuing the shift of powers to higher legal orders since it
confirms their authority and power. To a large extent the fact that more central-
ization takes place than is strictly needed (for example, in Europe) can be
explained by the strong powers of the bureaucracy involved.
5.2 Procedural
is that these ‘softer’ consensual solutions may lack enforcement teeth in case
of non-compliance.120
The policy logic so far has always been that, since transboundary environ-
mental problems require transboundary solutions, a centralization of decision
making is needed. Moreover, the centralization has in practice almost always
automatically been equated with a harmonization of environmental standards.
This leads to the normative question regarding to what extent a total conver-
gence of environmental standards is indeed desirable. There is an important
strand of law and economics literature121 holding that (in the absence of trans-
boundary externalities and empirical evidence of a race to the bottom) there
should still be room for divergence. The arguments in favour of divergence, in
the environmental field implying a differentiation of environmental standards,
can be based on a variety of grounds. First of all, with respect to environmen-
tal problems, location specific circumstances are always different. Hence,
there can be a strong technical reason to adapt standards to varying location
specific circumstances. Second, the legal cultures are also strongly divergent.
Many have, moreover, indicated that even if one were to harmonize law
formally this would not necessarily lead to a convergence in practice. The
reason is that even a similar wording (for example, imposed by a European
directive) may be differently interpreted in different (member) states, taking
into account their own legal culture.122
Moreover, harmonization of law in practice often means that particular
standards representing the legal cultural values of a majority (or of the
strongest players) will be imposed. In practice, this may mean that more
particularly in a globalizing world harmonization would not respect differing
values in the multicultural society.
On the contrary, many legal and economic scholars have pointed to the
advantages of differentiation. This could lead to competition between legal
orders. This competition can have the advantage that learning processes occur
whereby legislators can benefit from various experiences in different legal
systems.123 That benefit would be lost if the monopoly of one harmonized
It is also not difficult to state that globalization has had a clear influence on
private legal relationships, including in the environmental area. One can for
example point to international conventions (like Aarhus) that promote envi-
ronmental rights, access to justice and information, and public participation.
These are undoubtedly examples of international conventions that have had a
A brief look at the way in which globalization and environmental legal issues
interrelate shows that there are many unresolved issues that need further atten-
tion. In that sense the environmental issues can help to shape the research
agenda. To mention just a few:
needed) on the one hand with the setting of differentiated norms on the
other hand also need to be further explored.
• In order to increase the respect for the rule of law and the accountabil-
ity of decision-makers at the international level, access to justice, public
participation and the involvement of civil society could be further
improved.
• The framework for striking the balance between free trade and environ-
mental concerns also merits further research. This is particularly the
case when there is scientific uncertainty, which raises the question of
who shall take decisions on the extent to which environmental concerns
can trump free trade. The question also arises regarding to what extent
these decisions can/should only be based on scientific evidence and to
what extent public participation is needed as well.
It may be clear that answering some of these questions goes beyond the scope of
legal research and may need the involvement of other disciplines. For example:
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Multi-level governance of environmental harm 425
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13. The rule of law and judicial activism:
obstacles for shaping the law to meet
the demands of a civilized society,
particularly in relation to climate
change?
Jaap Spier*
There was a time when it was thought almost indecent to suggest that judges make
law – they only declare it. Those with a taste for fairy tales seem to have thought
that in some Aladdin’s cave there is hidden the Common Law in all its spendour and
that on a judge’s appointment there descends on him knowledge of the magic words
Open Sesame. Bad decisions are given when the judge has muddled the pass word
and the wrong door opens. But we don’t believe in fairy tales any more.1
‘It [the rule of law] may well have become just another of those self-congratulatory
rhetorical devices that grace the public utterances of Anglo-American politicians.
No intellectual effort need therefore be wasted on this bit of ruling-class chatter.’2
In theory … one could construct a model of judicial activism which accorded top
judges … complete liberty to decide what they wanted to decide. … At the other
end of the spectrum one could imagine a model which gives judges no leeway what-
soever to use their own discretion and which effectively requires them to serve as
electronic calculators … Between these two extremes – a lottery machine on the one
hand and a calculator on the other – there are innumerable intermediate positions.
What differentiates them is the extent to which they reflect a preparedness on the
part of the judges to expound – and justify – their personal view of the law.3
426
The rule of law and judicial activism 427
4 It is happily not entirely trouble and affliction. A very few states (such as
Sweden; see The Guardian 8 February 2006) and some states of the US (such as
California, Texas, Florida and Maine; see an interview with Lester Brown, Green
Futures, July 2008 p. 31) have very ambitious plans in the much shorter term. The EU
has adopted plans which aim to reduce emissions quite considerably in the mid-long
and even more in the long term. Promising as this may be, it is too late and too little.
5 See, inter alia Farber (2008, pp. 377 ff.).
428 Globalization and private law
Even in the short life of judicial activism in this country [Australia], there have been
extraordinary instances of the freaks of fortune and the instability of judicial
grandeur, and many brave new developments have already become entombed in the
urns and sepulchres of mortality.7
Before addressing this intriguing topic, a few words about the ambiguous
meaning of judicial activism.9 According to the current Chief Justice of New
Zealand (Dame Sian Elias), there is no ‘working definition’.10 In Dickson’s
view, judicial activism means ‘an approach to adjudication which seeks to
locate the particular decision in the context of a wider legal framework, point-
ing out what the consequences of the decision are likely to be for fact situa-
tions which are different from those currently before the court’.11 Devlin
describes ‘activist lawmaking’ as ‘the business of keeping pace with change in
the consensus’.12
6 That seemingly is also the view of the brilliant conservative Justice Scalia.
According to the Boston Globe (29 September 2004) at a talk at Harvard’s Kennedy
School of Government, he denied that the Constitution is a living document: ‘It is
blindingly clear that judges have no better capacity than the rest of us to determine
what is moral.’A similar point was made by Jim Allen, quoted by Harris (2007, p. 288).
I cannot escape from the impression that they overestimate many members of society
and underestimate judges (of the superior courts).
7 www.://quadrant.org.au/php/article_view.php?article_id=277.
8 Roach (2007, p. 72).
9 See about a related topic (the rule of law) Lord Bingham’s eloquent and well
considered ‘The Rule of Law’, o.c.; Kniec (2004, pp. 1463 ff.). Mark Tushnet (2007,
p. 415) observes that the term is ‘irresolubly ambiguous’; on p. 417 he mentions qual-
ifications by others. Harris (2007, p. 273) suggests the more neutral term ‘judicial
creativity’.
10 Quoted by Harris (2007, p. 298).
11 O.c. p. 370.
12 Quoted by Corder (2007, p. 323).
The rule of law and judicial activism 429
called ‘activist judgments’ are criticized by advocates of both the left and the
right wing.19
Finally, one should bear in mind that ‘activists’ can avoid criticism by play-
ing the card of belonging to the legalist camp.20 So, we should not be fixated
on the way judgments are phrased or ‘sold’.
4 A CLOSER LOOK
Over the centuries, the law (legislation and case law alike) has developed. The
former President of the Belgian Supreme Court Verougstraete put it as
follows:21
L’apport de la Cour dans l’évolution et l’harmonisation du droit est plus que jamais
à l’avant-plan des préoccupations de la Cour. Ce n’est pas qu’elle rêve d’une ‘justo-
cratie’ ou d’un ‘gouvernement des juges’. Mais les circonstances ont forcé la Cour
à être audacieuse et par ailleurs l’émulation d’autres institutions ne peut être sous-
estimée. …
Une complexité excessive des normes légales est le résultat d’efforts héroïques
de donner une réponse aux besoins très multiples et contradictoires des individus,
mais ces efforts aboutissent paradoxalement à un déficit démocratique.
For the adepts of Montesquieu’s paradigm that judges should be ‘la bouche
de la loi, des êtres inanimés qui n’en peuvent modérer ni la force, ni la
rigeur’22 (or, as Lasser put it in relation to ‘all that contemporary American
judicial … debate’ which ‘also contains remarkably large doses of vehe-
mently anti-policy rhetoric, … this anti-policy stance often goes hand in hand
with an understanding of the judicial role which valorizes the passive, and
mechanical judicial application of legal norms’)23 judicial activism obviously
is a nightmare.
But times have changed. So has the prevailing view. Already Portalis – one
of the drafters of the French Civil Code of 1804 – acknowledged that legisla-
the judiciary pillar of the Dutch Council of State) it depends on the case whether an
active or a more ‘defensive’ approach is preferable (2008, p. 1091).
19 Roach (2007, pp. 73–5).
20 Roach (2007, p. 28).
21 Verougstraete (2008, pp. 221 and 222).
22 Montesquieu (1758).
23 Lasser (2007, p. 72). Strikingly, Lasser adds that ‘an interesting and unmis-
takable pattern emerges: every time – with only one minor exception – that the [US
Supreme] Court (or any of its members) used the term “policy” to describe how a
fellow judge or jurist justified his proposed interpretation, it did so to dismiss that argu-
ment. “Policy”-based interpretation … turns out to be inappropriate in the American
judicial context’ (p. 73 with examples on the subsequent pages).
The rule of law and judicial activism 431
Le législateur n’exerce moins une autorité qu’un sacerdoce. Il ne doit pas perdre de
vue que les lois sont faites pour les hommes, et non les hommes pour les lois;
qu’elles doivent être adaptées au caractère, aux habitudes, à la situation du peuple
pour lequel elles sont faites; qu’il faut être sobre de nouveautés en matière de légis-
lation, parce que s’il est possible, dans une institution nouvelle, de calculer les avan-
tages que la théorie nous offre, il n’est pas de connaître tous les inconvéniens que
la pratique seule peut découvrir. … qu’il serait absurde de se livrer à des idées
absolues de perfection, dans des choses qui ne sont susceptibles que d’une bonté
relative.25
For those who still believe that the law is always clear, a quotation from one
of the giants of the common law may serve as a wake-up call:
at the moment it is really rather hard to know exactly what the common law is in
some areas in the light of the Convention [on human rights].26
Someone has to adapt the law in specific cases and, in the absence of any
specific law or ‘precedent’,27 to cut the knot. That heavy task has been put on
the shoulders of judges and they are the best fit for that purpose, which is not
to say that they do not make mistakes (they do). Denying that view is not at
all innocent. It implies that the law is given for once and forever, unless the
legislator changes it; that those parts of the law which are black holes are
doomed to stay a lawless realm until the legislator takes action. Not overly
attractive, is it?
More importantly, many cases submitted to the courts are not black and
white, seen from a legal angle. Apart from the appreciation of the facts and the
evidence (which are unrelated to judicial activism), the arguments put forward
by the parties often are more or less in balance.28 The court ‘just’ has to decide
24 His famous ‘Discours préliminaire du projet de Code civil’, Locré (1827, pp.
251 ff.).
25 O.c. No. 5.
26 Rogers (2002, p. 62).
27 One should bear in mind that the doctrine of precedent is a peculiar phenom-
enon of the common law. Most (if not all) continental European courts are not bound
by precedent, although it will often be a source of inspiration. So are judgments of
superior courts; not because they are binding, but because a judgment that ignores them
runs a fair risk of being reversed on appeal.
28 Ronald Dworkin goes to considerable lengths to argue that there is only one
right answer, even in hard cases (1977, pp. 279 ff.). I tend to agree with him in a series
of cases (such as recoverability of economic loss and whether capital punishment is
cruel). In less extreme cases, I tend to challenge his view. The issue probably is of
432 Globalization and private law
which of the two is most persuasive. This holds particularly true for the great
many blanket norms, such as equity, good faith, reasonable(ness), contributory
negligence, victim,29 unreasonable delay,30 due process,31 actionable
nuisance32 and so on and so forth.33 Giving meaning to such norms may (will)
– in particular instances – come close to judicial activism, but it can hardly be
avoided.
Courts cannot help it that their duty is to interpret the law. Can they be
blamed if they decide that a defendant committed a tort in the grey zone, or if
they hold that equity requires deviation from stringent rules if the law provides
such an opportunity? I do not think so. In doing so, courts do not play the role
of an activist. That is not necessarily the case even if the consequences of their
judgments may contrast with the ‘will’ of the legislator, as the legislator could
not anticipate each and every set of circumstances. Judges cannot help it that
legislation does not provide clean-cut solutions for every single case. Nor can
they be blamed that the law does not (and to some extent cannot) keep pace
with the demands of society.34
If one is not prepared to accept that courts cannot escape from making
choices or that they have to decide, even if the law is unclear and/or precedents
are not available, no justice could be done in a great many cases. After all, in
this – rather unattractive – view, all lawmaking would be up to the legislator.
No solution would be available if legal provisions collide.
limited practical importance. Even if he were right, courts will not always ‘find’ the
right answer, as becomes manifest inter alia when they reverse earlier judgments
shortly after having delivered them. So I feel more comfortable with Hart’s criticism of
Dworkin’s theory (1994, pp. 272 ff.). Hart puts it as follows: a judge ‘must always have
some general reasons justifying his decision and he must act as a conscientious legis-
lator would by deciding according to his own beliefs and values. But if he satisfies
these conditions he is entitled to follow standards or reasons for decision which are not
dictated by the law and may differ from those followed by other judges faced with simi-
lar hard cases’ (at p. 273).
29 E.g. art. 41 ECHR.
30 Art. 6 para. 1 ECHR. The ECHR has developed a vast case law about this
topic.
31 See, inter alia, Harlan’s dissenting view in Poe v Ulman, 367 U.S. 497, 541–2
(1961).
32 See inter alia, McManus (2008, pp. 493 ff.).
33 This does not mean that courts should act as ‘êtres inanimés’ if the law does
not grant the power to harp on the equity tune. As Carbonnier (quoted by Lasser, o.c.
pp. 45–6) put it: ‘Because the judge is a man and not a syllogism machine: he judges
by his intuition and his sensitivity as much as he does by his knowledge of [legal] rules
and by his logic.’
34 See about this topic, from the angle of the development of tort law, Bell (2007,
pp. 19 ff.).
The rule of law and judicial activism 433
Are judges overstretching their powers if they rule, say, that Article 2
ECHR is more compelling than most other human rights?35 Or are they just
doing their job? Or should we say that all the above is ‘only’ a matter of inter-
pretation of the law? If so, where and how to draw the line between interpre-
tation and further development of the law?36
Another ‘difficulty’ is that society changes over time. So do views on
morals, justice, equity and the demands of society.37 More often than not,
legislators lag far behind all those developments.38 Is this to say that courts
should stick to old-fashioned interpretations or outdated laws?39 Is it their duty
to ignore the demands of society? To close their eyes for the evolution of
morals, as Aubert put it?40 Delicate questions that cannot be answered in black
35 See about this topic e.g. Cariolou (2008, pp. 259 ff.).
36 Kerr (2003) rightly observes, in this context, that reasonable people can
disagree on many legal questions.
37 In his speech for the Bar Association of India, Australia-India Council (New
Dehli, 6 January 1997), the Australian Justice Michael Kirby quotes the Indian Justice
J.S. Verma: ‘The judiciary will continue to respond to the changing needs of the times.
That is how activism has evolved’ (www.hcourt.gov.au/speeches/kirkbyj/kirkbyj_
indialt.htm). He adds that the Indian Supreme Court has a respected reputation for
creativity and ingenuity in the development and adaptation of the common law to the
enormous contemporary problems and opportunities of the country (he subsequently
mentions a series of cases). The Australian Justice Frank Kito (quoted by Justice Kirby)
adheres to a fundamentally different view. So does the present President of the US
Supreme Court (Justice Roberts), as follows from his confirmation hearing: judges ‘do
not have a commission to solve society’s problems, as they see them, but simply to
decide cases before them according to the rule of law’ (www.cfif.org/htdocs/legisla-
tive_issues/federal_issues/hot_issues_in_congress/supreme_-judiciary-questionnaire.
htm).
38 Soli Sorabjee (former Attorney-General of India) – quoted by Justice Kirkby,
o.c. – put it as follows: ‘indignant critics forget that it is the Executive’s failure to
perform its duty and the notorious tardiness of legislatures that impels judicial activism
and provides its motivation and legitimacy. When gross violations of human rights are
brought to its notice, the judiciary cannot procrastinate. It must respond.’ Justice Kirby
rightly points out that politicians tend to confine themselves to issues that have a ‘vote
in it’. In his view, judges may ‘feel willing’ to act if ‘the permanent values are clear and
the issue is relatively discrete and manageable’ in the face ‘of clearly established
needs’. See also Raes (1997, p. 165). Justice McHugh made the same point, but put it
slightly more nicely: ‘Modern legislators simply do not have the time to continually
monitor and amend legal rules … If judges were to become reluctant to adapt the law
to a changing society, public confidence in the rule of law would be seriously impaired
because large areas of law would be out of touch with the needs of society. If the law
did not remain the appropriate mechanism by which citizens regulate their affairs and
resolve their disputes, it would become largely irrelevant’, o.c.
39 The question is convincingly answered in the negative by – inter alia – Justice
David, o.c.
40 Jean-Luc Aubert, D.2001 Chron. 489 (2001).
434 Globalization and private law
and white terms.41 But even Sir Owen Dixen, often called Australia’s greatest
lawyer and a judge who believed in strict legalism, admits that judges ‘must
proceed, not from political or sociological propensities, but from deeper, more
ordered, more philosophical and perhaps more enduring conceptions of
justice’.42 Justice McHugh is right, I think, commenting that this
A similar point was made by Justice Cardozo. After having observed that the
law is influenced by logic and tradition, he states that ‘[t]he end which the law
serves will dominate them all. … not the origin but the goal is the main
thing.’45 The European Court on Human Rights put it as follows: law (the
convention) is a living instrument.46
41 This, I think, is also the answer to those (many) commentators who do not
cease to harp on the tune that the making of the law is the task of the elected legisla-
tor; see e.g. Roach (2007, p. 76). Apart from the fact that few elections are about core
issues, let alone legislation, the problem is that legislators, the world around, do not
take their job seriously when it comes to topics requiring a long-term view, such as
environmental degradation, over-exploitation of natural resources, climate change and
the eradication of poverty; see for a similar view Salzberger (2007, p. 223). In most
countries many other vital topics could easily be added to this list. It is equally very
much open to debate whether it is true that judges could not be controlled if they greatly
(and consistently) overstretch their powers. The mere fact that this is rarely done is
telling, isn’t it? Governments (politicians) are seemingly – all in all – happy that others
do what they do not dare but ought to do. In other words: I challenge the view (ventured
inter alia by Kerr, o.c.) that ‘the more the courts roam, the less the elected branches
retain’. Yet, the former Australian Chief Justice Gibbs (2004) is certainly right in
saying that, in single cases, it may be unclear whether or not the law has been
improved. Not surprisingly, however, there are rather famous learned lawyers who
strongly oppose any judicial activism; among them Campbell (2003, p. 307).
42 Quoted by Justice McHugh, o.c.
43 I.e. thirty years later.
44 Ibid; he elaborates on this point further down. The need for judicial lawmak-
ing. A similar point was made by Justice Gummow (also quoting Lord Radcliffe) in Wik
Peoples v Queensland (1996) 187 CLR 1 at 179 and Stone (1936, p. 20).
45 Cardozo (1921, pp. 66 and 102) (also quoted by Justice McHugh).
46 Settled case law; see inter alia Johnston and others v Ireland, Series A no. 112
pp 24–5, § 53 and E.B. v France, appl. no. 43546/02 § 46. In Demir and Bakayra v
Turkey (12 November 2008) the Court goes quite far, in that it holds that it has never
‘considered the provisions of the Convention as the sole framework of reference for
interpretation of the rights and freedoms enshrined therein … It has always referred to
the “living” nature of the Convention, which must be interpreted in the light of present-
The rule of law and judicial activism 435
It remains true, of course, that judges should be cautious to develop the law
by bold or creative interpretation and even more so by applying too easily
approximative or vague concepts such as equity, good faith and the like. All
the more so in specific fields, such as real property law, the law of succession,
inheritance, time limitation, parts of insurance law, and even more so some
parts of family law and, more generally, realms of the law where legal
certainty is of utmost importance. In other fields, such as major parts of
contract law, tort law and environmental law, they can afford to be less reluc-
tant, I think. This leaves untouched that courts and judges should arguably be
reluctant to play easily the card of too outspoken views on moral issues or the
absurdity of a specific outcome.47
One of the major concerns of the antagonists of judicial activism is
their fear of ‘political judgments’.48,49 True, judges are not a political
day conditions, and that is has taken account of evolving norms of national and inter-
national law’(para. 67/68). It recalls that it has used ‘intrinsically non-binding instru-
ments of the Council of Europe organs’ (para. 74), whereas it cannot disregard ‘rules
and principles that are accepted by the vast majority of States’ which ‘reflect a reality’
(para. 76). In searching for the common ground ‘it has never distinguished between
sources of law according to whether or not they have been signed or ratified by the
respondent State’ (para. 78).
47 Lanner quotes an advisory opinion of Advocate-General Charbonnier: ‘It
would be morally unacceptable that … Such a solution would be all the more shocking
in that … It would simply be scandalous that …’ (o.c. p. 253). Such a very outspoken
view arguably is slightly overdone.
48 This point is made by many outstanding lawyers. E.g. Jon Bruning [talking
about the US] stresses that people ‘would prefer to have policy decided by their elected
officials, not by appointed judges’: testimony before the Committee on the Judiciary
United States Senate, 3 March 2004, p. 24 (Mr Bruning is Attorney-General of
Nebraska). A similar view is ventilated by the US Court of Appeals Court Judge
Diarmuid F. O’Scannlain (2008). In the same session Senator Edward Kennedy
eloquently and convincingly argued that legislators often waste their time addressing
minor issues, instead of tackling matters that really count (he is fairly concrete on that
point): o.c. p. 41.
49 On the other hand, one should not be over-sensitive. In a speech given on how
a British Bill of Rights and Responsibilities fits into a long British tradition, the Lord
Chancellor Jack Straw complains about the ‘lamentation’ of the opposition against the
law. Repealing the Human Rights Act ‘would reduce the margin of apprecation that UK
courts enjoy. It would have the effect of restricting the flexibility and the application of
the balance within the UK courts’. He described the HRA as ‘a living development of
rights to assist our citizens’ – ‘a floor and not a ceiling’. Further on, he claims among
his party’s ‘proudest achievements’ equality and a right to administrative justice,
adding with obvious approval that ‘Judicial review has developed significantly in
recent years; and … really does help ensure that executive decisions are made with
proper regard for the rights of the individual’ (publication of the Ministry of Justice, 21
January 2008). Justice Kirby quotes a Lord Chancellor (Lord Mackay of Clashfern):
‘The extent to which that [i.e. development of the law by judges] is permissible … is
436 Globalization and private law
not easy to formulate. … I find it difficult to enunciate what the boundary is. …
Development of the law is part of the traditional role of the judges over the years under
our system. It has been a healthy and powerful influence of the law and on the devel-
opment of the law and the protection of our people in the various centuries when it has
been done, and continues with complete health and robustness at the present time.’
Justice David (Supreme Court of New South Wales) quotes the former Australian Chief
Justice Sir Anthony Mason: ‘[W]e must recognize that the courts are institutions which
belong to the people and that the judges exercise their powers for the people. The
requirement that judges respond to the needs of the individual members of society
contains within it the expectation that judges will intervene in order to achieve justice.’
Justice David (2004) adds that ‘judicial responsibility is the function of an institution
that serves the community’.
50 Roach (2007, p. 76).
51 O.c. p. 289.
52 O.c. p. 19.
53 If they do not, the ultimate solution is that the executive or political branch
might envisage appointing more and other judges, as President Franklin D. Roosevelt
pursued when the US Supreme Court had invalidated major parts of his New Deal in
the 1930s (O’Scannlain, o.c.). Subsequently, the Court gave in. See for an Indian exam-
ple Iyer (2007, pp. 130 and 133).
54 The consequences can be manifold and to the extent possible they should be
taken into account: e.g. coverage by insurance, insurability, opening the floodgates and
legal certainty. Justice Gibbs points to a judgment (Brodie v Singleton Shire Council,
(2001) 206 C.L.R. 512) where the law of maintenance was further developed. In his
view, it was by no means clear that the law was improved. After all, it might mean that
the Council spent ‘large sums in compliance with the decision [and] would be unable
to find the money to perform other essential functions’, Gibbs (2004).
55 This point is stressed by – inter alia – Harris (2007, p. 285) and Gibbs (2004);
he adds that courts should hesitate before venturing into fields which to the court are
unknown or at best imperfectly appreciated. O’Scannlain (2008) rightly observes that
predictability and uniformity are important. In his view, the essence of judicial activism
is that a judge fails to apply the law but sways according to his own sentiment. Yet, he
also mentions that it often is impossible to say with certainty in any given case whether
or not the judge’s sentiments will lead to a ‘bad’ decision.
The rule of law and judicial activism 437
5 A FEW EXAMPLES
A few examples may serve to illustrate the points made above.
As a general rule, judgments that declare that laws have become obsolete and
have to be ignored are fraught with risk. But adhering to obsolete legislation
may have unacceptable effects. According to Dutch law (as it stood in those
days)56 an insured party was not entitled to receive compensation in excess of
the actual damage when an insured loss occurred. Despite this unambiguous
law, insurers provided coverage for losses caused by fire; they promised to pay
the amount agreed upon, even if the actual value of the insured premises was
less and/or the premises were not rebuilt. So the insured might gain from a fire.
It rather speaks for itself that the premium was based on the agreed coverage.
This was standard practice. Denying payment in accordance with the insur-
ance contract would favour the insurer and would mean that part of the
premium was paid for nothing. In this light, the Supreme Court held that the
relevant legal provisions had become obsolete and had to be ignored.57
Unacceptable judicial activism or realism? The latter view seems far more
attractive than the former, which would obviously have led to injustice (that is,
an unjust enrichment of the insurers).
Under Dutch law, liability for labour accidents is based on fault on the part
of the employer (Article 7:658 Civil Code). Over the years the Supreme Court
has developed its case law very much to the benefit of the injured employee,58
although the legal basis did not change in this respect.59 Since 199260 it has
provided an additional somewhat haphazard protection on the basis of (what
presently is) Article 7:611 Civil Code (the requirement of proper conduct on
the part of the employer; see below). True, the Court‘s case law is in a sense
courageous, but it remains within the scope of the law. In a sense it is legal
activism; at least insofar as the interpretation of the law has progressed over
time. But this does not mean – let alone necessarily – that its present case law
may be described as ‘activism’.61 It is equally possible that the old case law
was (or had become) unduly mean to plaintiffs. Yet, it is suggested that it is
neither of the two. The development is, I think, broadly speaking, in line with
the changing concept of fairness and the changing demands of society, as
perceived by many.62 Is this to say that the development is wrong? Frankly, I
fail to see why, all the less so as the new case law remains within the scope of
the law entirely. This goes not only for the text of the law but also for the rather
ambiguous debate on the law when enacted in Parliament.
Moreover, the debates in Parliament do, in my humble view, not necessar-
ily provide much guidance; at least, one should be careful not to overestimate
the literal text. Apart from the fact that in the course of the debates most atten-
tion is often paid to minor details and/or that the argument goes in all direc-
tions, not seldom without a conclusive and clear outcome, they can easily be
misunderstood, as the following case may illustrate. The Dutch Supreme
Court had to decide a case about liability for allegedly improper supervision
of a small insurance company by an agency of the State. One of the questions
was whether or not the norm violated aimed to protect the victims (Article
6:163 Civil Code, the ‘relativity requirement’). The Court answered the ques-
tion in the affirmative.63 This finding was based on observations by the
Minister of Finance in Parliament that the supervisory legislation was (also) in
the interest of the public. But does this mean that the relativity requirement
was met? I am far from sure. First, the observations by the Minister (not a
lawyer) can easily be understood as a nice gesture without any further impli-
cation. Politicians often harp on tunes that sound good. More importantly, I do
not think that the Minister realized, let alone intended, that the supervisor
could be liable (in full, as there is no cap) in case of improper supervision. I
may be mistaken, but the very least to say is that one could argue both ways if
one is prepared to give this point more than cursory attention, which the Court,
with due respect, seemingly did not.64
This goes to the heart of the matter. As long as we do not know (let alone
with sufficient precision) what the legislator meant and the text of the law
leaves room for various interpretations, discussions about judicial activism
often are not very useful, or are even beside the point.
62 Over the last decade the social security system has eroded significantly. This
may have played a role.
63 Hoge Raad 13 October 2006, Jurisprudentie Aansprakelijkheid 2007, 2;
Nederlandse Jurisprudentie 2008, 527.
64 Needless to say, this point is ignored altogether in the discussion about the
Supreme Court’s judgment. I tend to believe that the Court did realize that its reading
(and reasoning) was far from compelling, but – as it turned out, rightly – assumed that
this would be overlooked as its argument is based on many – though in my submission
not conclusive – quotations.
The rule of law and judicial activism 439
I just mentioned the case law based on Article 7:611 Civil Code. It started
with a case about damage to an employee’s car, incurred in the course of his
work. The Supreme Court held that the employer had to bear the costs of
repair.65 The next case was about a car accident in the course of his work,
caused by negligence of the employee; the accident caused personal injury to
the employee. There was no way back: the Court understandably and unavoid-
ably held that the employer had to bear the loss.66 Since then, other cases have
been submitted to the Court.67 I will not go into detail as Dutch law is proba-
bly not your prime concern. It suffices to say that the Court faced (and still
faces, as more cases are pending) a delicate dilemma. Seen from the angle of
justice and – in a sense68 – consistency, injustice would be done in denying the
new claims. For the same reason, there are no solid arguments to dismiss
claims in related cases. Yet, this is a slippery slope, as it will ultimately blow
up the system, as it would introduce a strict liability which would certainly not
be in line with the intention of the legislator, nor with the text of the law,
which, in this respect, is unambiguous.
The gist of my argument is that developing the law in specific cases can lead
courts into a legal quagmire. At a certain point in the development of case law,
difficulties arise when new cases, aimed at further developing the law on the
basis of the existing precedents, are submitted to the court, and it comes to
realize that – with the benefit of hindsight – something may have gone ‘wrong’
in the past. ‘Wrong’ to the extent that the outcome of earlier cases was (often)
undisputedly reasonable and equitable, but it was never anticipated that plain-
tiffs would submit ever more related cases and whilst there are no convincing
arguments for not applying the same ‘rules’ to the new cases which come very
close69 to those decided earlier. In each single new case, there are no (longer)
persuasive arguments for not applying the new rule.
Is this to say that judges should resist the temptation to do justice in specific
cases? Definitely not. But they should try hard – harder than they sometimes
do – to avoid difficulties as just mentioned. Yet, they will fail from time to
The UN Committee against Torture held that a contracting State can be (and
in the case at hand was) obliged to submit a case concerning a leading politi-
cian to the competent authorities for the purpose of prosecution.75 Besides,
marginal punishment can (also) violate Article 2 ECHR.76 Seen from this
angle, it is all the more striking that the Dutch Supreme Court holds that Dutch
legislation, which requires that decisions concerning prosecution of Ministers
are entirely in the hands of the Lower Chamber of Parliament or the govern-
ment, does not violate international conventions (including the ECHR).77 The
first two judgments are bold. Are they examples of ‘judicial activism’?
Perhaps. But, though courageous, they do not invalidate any legal provision,
nor are they in any sense contrary to any provision of the European
Convention. The third decision is more surprising. It seems a deed of – to put
it nicely – ‘conservative activism’.
judgment was rendered.81 So, it is far from obvious that the court can be
‘accused’ of any real activism.
As early as 1897 the French Supreme Court interpreted Article 1384 para. 1
Civil Code82 in a very extensive way.83 Up to today, this remains a landmark
decision. Probably indeed an act of judicial activism, with the apparent aim to
protect victims, despite the fact that the Court’s interpretation does not go
against the text and despite the fact that the legislator did not envisage or
intend such a wide interpretation, whereas earlier decisions had derived a
much narrower meaning from the same paragraph.84
In the Anca judgment85 the Belgian Supreme Court dealt with the question of
whether the State could be held liable for damage caused by incorrect judg-
ments. The Court answered the question in the affirmative ‘in view of the
present state of the legislation’ (gezien de huidige stand van de wetgeving). Yet,
liability is restricted to cases which are reversed on appeal because the lower
court had violated ‘an established rule of law’ (een gevestigde rechtsnorm).
According to the Court, its judgment did not disrespect the trias politica, the
Constitution, or the independence of magistrates who are not liable in person.
No doubt a courageous and potentially far-reaching judgment. Despite the many
words used, the Court barely gives insight into its grounds. I tend to think that
this judgment falls under the umbrella of judicial activism. The Court may have
taken the view that liability matches the demands of a modern society.
The same holds true for the fascinating Italian case law about danno
biologico or danno alle salute, a species of damages in case of personal injury
available besides compensation for actual loss of income and for pain and
suffering.86 This, finally, is an entirely new, bold concept next to well-
established, internationally recognized concepts of damages.87
81 This is not to say that the judgment was universally applauded. Victims took
the view that the Court did not go far enough in that it did not hold that time limitation
had to be set aside in all cases. Insurers sounded the alarm, which turned out not to be
a brilliant move. Since, the legislator has taken action for future cases; as a conse-
quence defendants and insurers will be worse off, compared with the cautious and
balanced approach of the Supreme Court.
82 ‘On est responsable non seulement du dommage que l’on cause par son propre
fait, mais encore de celui qui est causé par le fait des personnes dont on doit répondre,
ou des choses que l’on a sous sa garde.’
83 Civ. 16 June 1896 (Teffaine), DP 1897, I. 433.
84 See for more details Viney and Jourdain (1998) par. 628.
85 19 December 1991, TBBR 1992, pp. 60 ff.
86 See for more details Busnelli and Comandé (2003, pp. 180 ff.).
87 See Koch and Koziol (2003, p. 424) and Rogers (2001, p. 246).
The rule of law and judicial activism 443
More delicate (for both moral and substantive reasons) are cases about wrong-
ful birth and wrongful life.88 Courts in several countries have rendered judg-
ments favourable for the plaintiffs.89 In a sense, they are examples of judicial
activism par excellence, as they extend the concepts of liability and damages.90
Yet, it is open to debate whether this prima facie view is entirely justified. First:
the courts could not escape from deciding these cases, whereas one can hardly
dispute that a (considerable) loss is suffered. Solid arguments (in international
doctrine and case law) can be found for decisions either way. Under these
circumstances, it is not easy to explain why only a judgment favourable for the
plaintiff would qualify as judicial activism. Or would a judgment for the defen-
dant also be judicial activism? That would be an odd result, I think.
The New Zealand Court of Appeal accepted that damages could be awarded
against the Crown as a remedy for a breach of the Bill of Rights, a judgment
called ‘creative’.91 And the South African Constitutional Court dealt with a
case of rape by policemen. This obviously did not belong to their duties.
Nevertheless, the Court held that the employer was vicariously liable. This
judgment, too, is labelled ‘most far-reaching ‘ and ‘activist’.92 This label
may93 be justified, seen from a local angle. Seen from a comparative angle, it
hardly is. As to the latter: opinions are divided in Europe, but liability is well
in line with case law in Belgium, France, Greece, Italy (perhaps), the
Netherlands, Poland, Portugal (perhaps), and also in Israel.94
88 The issue was heavily debated in the European Group on Tort Law. Opinions
greatly diverged; many members preferred a cautious approach (i.e. no compensation),
particularly on moral grounds. See for more details, also about recent case law in vari-
ous countries: Koziol and Steininger (2008, pp. 138 ff.).
89 See for more details Koziol and Steininger, Tort and Insurance Law
Yearbooks, European Tort Law 2003, 2004, 2005 and 2006..
90 See inter alia Radé and Bloch (pp. 117–18); and the various contributions in
Koziol and Steininger, Tort and Insurance Law Yearbooks, European Tort Law 2003,
2004, 2005 and 2006 and Kortmann and Hamel (2004) (with several contributions in
English).
91 Harris (2007, p. 304).
92 Corder (2007, p. 357).
93 See the next footnote.
94 See for more details: Spier and Haazen (2003, pp. 318 ff.). If the South
African report by South Africa’s leading tort law expert Neethling is correct (2003, p.
228), the Court’s judgment was far from ‘activist’ or far-reaching but in line with the
prevailing view in South Africa.
444 Globalization and private law
Case law sometimes paints a fascinating picture of the struggle between the
legislator/executive and the judiciary.98 The Indian Supreme Court ruled that
where judicial redress is sought for legal injury to a person, or a determinate
class of persons who, by reason of poverty, helplessness, socially or econom-
ically disadvantaged position or disability, are unable to approach the court for
relief, any member of the public, acting bona fide and not for oblique consid-
erations, may maintain an action on their behalf.99
More generally the Supreme Court has been innovative in the interpretation
of the right to life, which, in its view, encompasses a right to food, clothing, a
livelihood, health, development, education, protection against environmental
degradation, and even a right to roads in hilly regions.100 The Court also
explains why it went so far:
The concern shown [by the law] to the poor and the disadvantaged [should be]
much greater than that shown to the rich and well-to-do because the latter can, on
account of their dominant social and economic position and large material
resources, resist aggression on their own rights where the poor and the deprived just
do not have the capacity or the will to resist and fight.101
These examples show that the Indian Supreme Court goes quite far and
does not shy away from judicial activism. It is, of course, a matter of appreci-
ation whether one likes this stance. The very least to say, is, in my submission,
that its approach, bold and courageous as it is, is far more attractive than a
more reluctant one in which judges close their eyes to large-scale misery and
injustice (in the proper sense of the word; not in the doctrinal one).
According to Brice Harris the question is whether ‘informed people think,
given a realistic appreciation of the demands of society for governance and the
system of government that exists, that any creative action taken by the court is
the best way the country’s governance structure could have reached to a situ-
ation that required a rule making or rule-application initiative’.102 In this
sense, which I whole-heartedly endorse, the Indian Supreme Court’s courage
can only be applauded.
There is a lot more, such as cases about appalling working conditions,
about the right to basic needs and all aspects of equality (gender, race and
otherwise). It goes far beyond the scope of this chapter to tackle them. Some
probably are examples of judicial activism, others are hardly more than admit-
ting the only acceptable outcome and by the same token, in my submission, no
deeds of activism at all.
Fascinating also are cases about historical wrongs. Colonization brought much
evil to many countries.103 The people who lived in a country (often in peace)
were killed, or at least lost their land. In the last 15 years or so, they have tried
to ‘rewrite’ history with some noticeable successes. Several courts were not
indifferent to the appeal that – as Justice McHugh put it – ‘they must repudiate
rules developed in earlier times when those rules have become out of touch with
contemporary notions of value.’104 Apparently following this reasoning, victory
was on the side of the ‘oppressed’ in cases about the title to (their) land.105 The
same holds true for various kinds of Holocaust claims, claims concerning slav-
ery and claims about forced labour during the Second World War. Legislators
in various countries understood the changing tide and acted accordingly.106
Last but not least, one of the many cases on the battleground of climate
change: Massachusetts et al v EPA.107 The US Supreme Court held, inter alia,
that EPA’s refusal to regulate presents an actual and imminent risk of harm and
that the refusal to regulate at a minimum contributes to injury. The Court
rejects the ‘after you argument’ (reduction in the US is of no avail as long as
other countries (developing countries included) do not do the same). These
two findings probably are the most important and most spectacular. But I do
not think they have anything to do with judicial activism, as they are based on
solid grounds and do not violate any existing law.108
129 and for more details Richard Ogden, [1998] Victoria University of Wellington Law
Review 16; Canadian Pacific Ltd. v Matsqui Indian Band, [1995] 1 S.C.R. 3;
Delgammuukw v British Columbia [1997] 3 S.C.R. 1010 and Ronen (2008, pp. 521 ff.).
106 See for more details Spier (2007, pp. 16–17).
107 549 US 2007.
108 Although that view is fiercely challenged by the Court’s minority.
109 See also Harris (2007, p. 277).
110 Anant and Singh (2002, pp. 4433 ff.).
The rule of law and judicial activism 447
materialize as courts are not equipped to make technical choices or sample the
distribution of preferences in a society.111 They conclude as follows:
The persistent justification of the courts in all cases of either executive or legisla-
tive judicial activism has been that the courts have been forced to take an activist
stance precisely because of the executive or legislative failures. However, this
activism cannot substitute for the failed institutions, any more than, allegorically
speaking, equating marginal costs to marginal benefits in all markets in response to
the prevalence of inoptimal conditions in one market can insure a global optimum.
Judicial activism … acts to breach separation of powers, which in turn upsets
transnational efficiency and raises social costs. Indeed if the executive or the legis-
lature has become dysfunctional – rotten boroughs of obsolete executives and
unrepresentative legislatures – the solution is not in expanding the judicial enter-
prise, but in restructuring the dysfunctional institutions.112
A major objection to this view is that it seems to overlook the moral angle.
Apart therefrom, it may fairly be assumed that the learned authors seriously
mean that their advocated solution could bring solace. That view, however, is
fundamentally unrealistic and by the same token irrelevant. Anant and Singh
do not show or even point to how dysfunctional institutions could be restruc-
tured, let alone who could achieve that goal. Executives, business people and
politicians, more often than not, have, at best, a short-term view. They are
systematically indifferent to everything that goes beyond the sway of the day.
And, quite frankly, politicians can often hardly be blamed for it, as – with ever
fewer exceptions – only those issues are addressed by the media. Yet, if
nobody else cares for doing inevitable justice, courts cannot look backwards.
That particularly goes for topics which are of utmost importance for
humankind or significant groups.
7 INTERIM CONCLUSION
Judicial activism is a very controversial topic. It follows from the above that
the discussion often paints caricatures of the judiciary and its judgments.
Things tend to be seen in black and white.
In the vast majority of cases judges just apply the law as it stands, without
any fiddling with the foundations of the law as enshrined in acts or precedents.
Yet, judges in many countries are after an equitable result in the case at point.
In most cases this can easily be reached within the framework of the law as it
stands, whether or not by applying concepts of equity, good faith, boni mores,
negligence and so many more open norms: concepts which, quite often, are
part of the law (case law and/or acts, conventions, treaties).
In a minority of cases – that is, those which are discussed at length in
doctrine and at conferences – the law, in the sense of a clear-cut precedent or
act, is insufficiently clear or even not available. In those cases judges have to
make a choice. In my submission this has little, if anything, to do with judicial
activism.
In a very few cases – no doubt the most spectacular – courts break truly
new ground. In that respect some judges are more courageous than others.
Some go quite far to ‘develop’ the law in order to cope with – in their view –
unacceptable situations. The Indian Supreme Court may serve as an – in my
view shining – example. Others seem to adhere to the view that it is not their
task to keep pace with the changing demands of society.
Some judgments undoubtedly are acts of judicial activism. Criticizing the
phenomenon, more often than not, is a rather concealed way to criticize the
outcome, more than the process. Interestingly, it seems though extremely
conservative judgments/judges are rarely accused of activism.
Having said that, I have to admit that truly activist judgments are, of course,
not entirely unproblematic seen from a ‘democratic angle’ or, which largely
amounts to the same, the perspective of legitimation. It may fairly be assumed
that (most) courts will take criticism seriously; at least they should. It is
certainly not beyond imagination that they will change course, particularly if
the judges are persuaded by the criticism. Besides, in most cases (not – neces-
sarily – always, as briefly illustrated in Section 6 above) the legislator can
‘overrule’ case law he does not like. If he fails to do so, courts may well inter-
pret the legislator’s silence as a ‘silent consent’.
Be it as it may, I tend to challenge the view that each and every judgment
that keeps pace with the demands of society can be labelled as a deed of ‘judi-
cial activism’. Personally I would prefer to use that term only for those cases
where courts develop fundamentally new concepts which were not yet ‘in the
air’ or go downright against clear and unambiguous acts. It is a matter of taste
(and largely depends on the outcome of every single case) whether or not one
likes those judgments. Admittedly, courts should be reluctant in this respect.
But they should not be cowardly. In some cases they must show courage.
Climate change is such a topic. But it is by no means the only one.
113 There is a huge body of doctrine about this topic. See inter alia: Verheyen
(2005); Smith and Shearman (2006); Faure and Nollkaemper (2007, pp. 123 ff.) and
Spier (2006, p. 346).
114 This is certainly not the only topic of utmost importance. The same goes for
environmental degradation, over-exploitation of natural resources, destroying the
oceans and the eradication of poverty.
115 Dietrich v the Queen (1992) 177 C.L.R. 292, 329.
116 Lord Irvine has fiercely criticized this kind of extra-judicial statement (quoted
by Kirkby). No doubt Lord Irvine has a point. On the other hand, openness in this field
might have a preventive effect in that courts do not come into play any more, which
would be beneficial to everybody, would it not?
117 Harris (2007, p. 288) and Iyer (2007, p. 166).
118 That is, I think, Hans Corell’s (2008) point stressing that any agreements
entered into must be effectively implemented (Corell has been UN Legal Counsel).
Justice Gibbs quotes Lord Reid: the court can extend the law ‘by the development and
application of fundamental principles’. He adds that it may also find a new principle
(o.c.). Many have pointed to the increasing importance of those realms of the law; see
inter alia Lord Bingham, o.c., noting that the rule of law surely requires legal protec-
tion of fundamental human rights. Raes (1997, p. 166) also points to general principles
of law. See also Clapham (2006, pp. 87 ff.).
119 Heydon (2003).
450 Globalization and private law
cannot help it that a long-term view and consideration for those whose future
is frittered away does not appeal to the people who have to elect them.
Yet, I would expect that courts, around the globe, will be courageous enough
to find ways to avoid the extremely significant evil that is going to materialize
if we stick to business as usual by emitting huge amounts of CO2 or if we leave
it to politicians and CEOs of enterprises to change course.20 Even if that would
require bold judicial activism (to an unheard-of extent), they will, in my
submission, be the only responsible people and they will be remembered in
history. The latter may also go for the others, in that they will be held in scorn.
After the defeat of Napoleon, a congress was convened in Vienna. A huge
series of topics, all about the future of Europe, were discussed. Among them
was the abolition of the slave trade, strongly advocated by the English dele-
gation. The proposal met fierce criticism from the Spanish and Portuguese
delegates. Palmella, the Portuguese representative, bluntly observed that this
was not a topic covered by international law. Some progress was made a few
days later. A declaration was adopted which called this trade immoral and
abhorrent.121
Those who object to judicial activism would probably support Palmella’s
view that judges are doomed to abstination in the absence of clear and author-
itative legal support for any ‘action’. Seen from a purely academic angle, this
may be an interesting view. The consequences obviously are unacceptable.
That holds true for any topic that affects fundamental human rights and more
generally vital interests of society or future generations or significant parts
thereof. Denying the latter view amounts to a lawless world, where only short-
term interests, power play or ignorance triumph.
If nobody else feels responsible, lawyers must stem the tide. And, whether
one likes it or not, there are and will always be courageous courts that take the
lead and are indifferent to pleas of academics whose only focus is legal theory.
Besides, I would suggest that legal theory (this chapter included) will barely
have any impact on judges (be they progressive, conservative or just capable
craftsmen). Or, as Lord Justice Alan Moses put it in a lecture at Trinity
120 Surprisingly, even banks, pension funds and supervisory institutions do not
seem to care. To the best of my knowledge, (re-)insurers still provide coverage, at least
in the realm of liability. The latter is all the more surprising as they (understandably)
exclude coverage for economic loss caused by genetically modified organisms, inter
alia because of incalculability (Ebert and Lahnstein 2008, pp. 577–8). Yet, some
awareness seemingly has arisen. AIDA and the Geneva Association are in the process
of some fact finding, although it is difficult to understand why they think that the facts
are (still) insufficiently alarming.
121 Adam Zamoyski, Rites of Peace: The Fall of Napoleon and The Congress of
Vienna, HarperCollins, 2007, ch. 25.
The rule of law and judicial activism 451
But I remind you of one important point. Some of you, when you go down from the
University … A few – I hope a very few – will become teachers and Dons. Let me
make this clear to you. Except for those in the last category, nothing that you will
learn in the course of your studies will be of the slightest possible use to you in
afterlife.122
It follows that those who contribute to a decent development of the law, and
by the same token to a better world, do not have to fear. True, they will be
despised by (often very bright, though narrow-minded) academics and conser-
vative members of the judiciary for their judicial activism. Bold and coura-
geous judges will readily accept this fate. For sure, the criticism is not going
to have any impact on the development of the law. It never has.
At her farewell speech the Canadian Supreme Court Justice Claire
L’Heureux-Dubé cited Camus: ‘La justice n’est pas seulement une idée, c’est
une chaleur d’âme.’123 All we have to do is materialize ‘justice’. The highly
academic issue of judicial activism can be left to the citizens of ivory towers.
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454 Globalization and private law
Comparative conclusions
14. Comparative and concluding remarks
Michael Faure and André van der Walt
457
458 Globalization and private law
democracy, legitimacy and accountability that exceed the mere shift to state
actors or international organizations at a higher level of governance. Deirdre
Curtin explains in Chapter 2 that in the field of private lawmaking the mixed role
of public and private actors is often salient, referring (like Jan Smits in Chapter
1) to the Draft Common Frame of Reference to show how a group of private
individuals (experts) or a study group can draft a document that is afterwards
‘rubber-stamped’ by the European Commission as a supranational public actor.
4 PRIVATE–PUBLIC LAW
Many of the chapters also (implicitly and explicitly) make clear that the tradi-
tional distinction (at least in legal systems with a civil law tradition) between
private and public law has become increasingly blurry. This is not surprising,
since many contributors point to the fact that traditional tasks of the nation
state such as lawmaking (public law) are increasingly no longer the monopoly
of state actors and have partially shifted to private actors. The increased
reliance on self-regulation, soft law and codes of corporate conduct shows that
traditional lawmaking powers have shifted to non-state actors. Other chapters
show that there is often such a strong interdependency between private and
public law that one could speak of grey zones rather than analytically distinct
concepts. For example, in Chapter 11 Lindenbergh addresses the influence of
fundamental rights in private law, a process that has been described as the
462 Globalization and private law
Rhee argues (Chapter 10) that some harmonization of procedural laws may
facilitate transboundary civil procedure.
From an economic perspective, Van den Bergh (Chapter 3) is far more crit-
ical of generalized harmonization, pointing out the heterogeneity of preferences
and the advantages of decentralized information and innovation. This corre-
sponds with an often heard concern that harmonization may not respect the
benefits of cultural diversity or that (perhaps worse) harmonization may lead to
the imposition of a (dominant) Western culture, thus (once more) disrespecting
cultural differences. The level at which law should be made is, as is shown by
Curtin (Chapter 2), also closely related to the question of accountability. The
more public powers are shifted away from the people concerned, the more this
may result in gaps in the accountability of (public) actors for the exercise of
authority. These arguments from political science (Curtin) and economics (Van
den Bergh) thus point to the necessity to be more cautious (especially at the
European level) with the overall tendency towards convergence and harmo-
nization that disrespect differences in legal cultures and values.
The question of to what extent a global culture of legal values indeed exists
also arises in the area of the protection of human rights, as is made clear by
Lourens du Plessis (Chapter 6) and Siewert Lindenbergh (Chapter 11).
Discussing various cases where private law rights were either enforced or
limited on the basis of human rights, Lindenbergh rightly points to the fact that
these (Dutch and German) cases were based on a particular interpretation of
human rights in those countries, whereas these interpretations may not be
shared by all. Du Plessis (Chapter 6) similarly shows how unthinking confla-
tion of reliance on international law and constitutional comparison could under-
mine respect for local context and national or cultural differences and variety.
mere fact that a document such as the Draft Common Frame of Reference was
drafted by an academic study group signifies a problem from a democratic
perspective. Deirdre Curtin also argues in Chapter 2 that other instruments could
increase public accountability even when private lawmaking does not originate
from the traditional nation state. However, she equally makes clear that the exam-
ple of the European Union shows that to some extent still much is left to be
desired in that respect. Various contributors discuss different techniques to rein-
force the accountability and legitimacy of the process of private lawmaking in
cases where lawmaking takes place beyond the nation state. For example, Frits
Stroink (Chapter 5) highlights the importance of general principles of adminis-
trative law and more particularly the legality principle, which indicates that in a
democracy the powers of the administrative authority are essentially limited.
Interestingly, Sieg Eiselen points to the fact (also suggested by Smits in
Chapter 1 and Curtin in Chapter 2) that, even if norms are generated through
so-called soft law (in the case of harmonization of international trade law), the
drafters will ensure that the harmonizing agent is sufficiently representative of
all the stakeholders in the field. Eiselen shows (Chapter 4) that the most
successful of the harmonizing instruments were remarkably also those that
were built on basic democratic principles. As long as private law legal norms
emerging from other sources than the nation state are still created on democ-
ratic principles, the shift of lawmaking powers to non-state actors should
therefore not necessarily be problematic. Furthermore, both Bas Steins
Bisschop (Chapter 8) and Philip Sutherland (Chapter 9) argue that soft law
instruments such as codes of corporate governance and corporate social
responsibility could be introduced as (soft law) mechanisms to control the
behaviour of multinational corporations to an extent that formal legislation
would perhaps not be able to do.
Lourens du Plessis (Chapter 6) and Siewert Lindenbergh (Chapter 11) raise
the question of to what extent human rights can be invoked as (harmonizing)
principles to correct lawmaking or other behaviour by non-state actors where
necessary. They show that, even though the human rights perspective has a lot
of potential, there are limits as well, more particularly related to their inher-
ently vague nature and to the already mentioned question of whether these
rights can always be regarded as carriers of universal values, notwithstanding
differences between legal cultures.
7 PROCEDURAL ISSUES
Many contributors stress questions of a procedural nature, both procedural in
the broad constitutional sense (who sets the agenda for private lawmaking)
and in a more narrow sense (referring to issues of civil procedure).
466 Globalization and private law
The researchers involved in the project that gave rise to this book realize
that there are still many issues that need to be addressed more carefully and
they hope to have the occasion to address (some of) these issues, preferably of
course in collaboration with other research groups interested in similar issues.
At the theoretical level further research could for example be undertaken into
common values and how these may affect private lawmaking. Much of the
debate on private lawmaking has focused on harmonization of private law in
Europe. The question is to what extent European (legal cultural) values are
comparable to those in for example Africa, the Americas or Asia. Moreover,
the question of which effects of globalization on private lawmaking are
(normatively) desirable and which are less desirable still needs further atten-
tion and refinement.
The question also arises as to whether, given the shift of powers for private
law lawmaking beyond the nation state, it can still be guaranteed that the
norms that result from this process are democratic, legitimate and in the public
interest. Some first steps to answer this important question are taken in this
book, but this issue definitely still deserves more attention.
Moreover, some of the general (theoretical and policy oriented) questions
concerning globalization and private law could also be applied to specific
problems, such as poverty and climate change and the challenges posed by the
current financial crisis. These major global problems provide excellent oppor-
tunities to test whether some of the theoretical perspectives provided in this
book could be applied in a meaningful way to address these global issues.
We hope that this book provides a fruitful contribution to the debate which
will, given the many global problems and challenges that still exist, undoubt-
edly continue.
REFERENCES
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Lovell (ed.), (Mis)recognition, Social Inequality and Social Justice, London; New
York: Routledge, pp. 17–35.
Lindahl, H. (2007), Book Reviews: Constitutional Rights after Globalization and
Sovereignty and its Discontents: On the Primacy of Conflict and the Structure of the
Political, Social & Legal Studies, 16, pp. 149–52.
Smits, J. (2007), ‘Lawmaking in the European Union: On Globalization and Contract
Law in Divergent Legal Cultures’, Louisiana Law Review, 67, pp. 1181–1203.
Index
Aarhus Convention 404, 415–16 Afghanistan 117
abortion 245 Africa 248, 269, 427
academic lawyers: Draft CFR 15–16, see also individual countries
37–8 agent–principal problem 62, 272, 279,
access to justice 140, 351 283
environmental issues 403–4, 415–16, Albania 117
417 Albers, P. 348
accountability 22, 32–3, 50–51, 416 Alchian, A.A. 272, 273, 279
corporate law 218, 220, 226, 304 Alston, P. 299
definition of 20–21, 45–6 alternative dispute resolution (ADR) 348
Draft CFR 22, 23–4 arbitration see separate entry
environmental law 407, 409, 410, conciliation 115–16, 349
416, 417 mediation 316, 355, 361
governance 32–3, 40–41 altruism 189
actors 34–8 Amazon 88
instruments 39–40 AMD (Advanced Micro Devices) 233
multi-level 33–4 Anant, T.C.A. 446
legitimacy and democracy in EU Andersen, C.B. 104
41–5, 50–51, 407 Andrews, N. 343, 351, 357, 358, 361
market 23–4, 27 Anglo-American 285
regulators 78 Annan, K.A. 259
relationships 45–7 antitrust/competition law 61, 62–3, 379
as a social relationship 49–50 apartheid 152, 247
state commercial activity 189, 191, applicable law 98–9, 125, 302
192, 196 civil procedure 344, 349, 350
types of 21 transboundary pollution 393
as a virtue 47–8 arbitration 110, 117–18, 313, 348, 359,
accounting/bookkeeping scandals 232–3, 360
234–5, 241, 242, 243 International Court of Arbitration 119
accounting firms, international 296 state commercial activity 199–200
Ackermann, L.W.H. 170, 171, 173, 174, Trail Smelter case 403
177 UNCITRAL 115–16
administrative law 139–40 Model Law 111, 116, 118
contracts between administration and UNIDROIT 125
citizen 140–41 Arcuri, A. 394, 405
global 51, 141–4 Argentina 121
state commercial activity and 183–6, Armenia 111
203–4 Armour, J. 219, 300
actions of the state 186–7 Arnould, J. 188
applicable norms 187–93 Aronson, M. 201
enforcement of norms 193–200 Arora, N. 444
private and public in law and Arrowsmith, S. 188, 190, 191, 198, 199,
social practice 201–3 203
469
470 Globalization and private law
environmental law 383–6, 435, 459 European Court of Justice (ECJ) 37, 67,
contribution to globalization debate 78, 81, 86, 369
415–17 Cassis de Dijon judgment 73, 74
economic analysis 76–7, 78 fundamental rights 370–71, 377
heterogeneity of preferences 61 multinational corporations 287–8
information asymmetries 62 trade–environment dispute 398, 416
environmental licences 139 transboundary pollution 393
globalization: influence on 400 European Free Trade Association 347
institutional 400–401 European Parliament 16, 37, 38, 41, 64,
procedural 401–6 80–81
globalization: influence on: European Union 458
normative analysis 406 accountability 23–4, 32–3, 46, 47, 49,
contents: differentiation of 50–51
standards 414–15 governance, shift in 34–8
institutional 406–12 hard and soft law 39–40
procedural 412–14 civil procedure 344, 346–7, 350–57,
influence of environmental issues on 359
globalization 382, 387–92 comitology committees 37, 49–50
influence of environmental issues on contract law 203
globalization: normative corporate law 232, 235, 292, 297
analysis 392, 394 Council of Ministers 37, 50
mobility of products, firms and Draft CFR 15–16, 22, 27–8, 37–8,
services 399–400 39–40
multi-level governance 392–4 accountability 23–4
race to the bottom 395–6 design or organism 25–7
trade–environment dispute 396–9 participation 24–5, 27
MNCs 268, 319, 322, 323, 325 economic criteria: optimal regulatory
differences in standards 389, level 57, 58, 60, 63, 80–81
390–92, 395–6, 399–400 competition law 61, 62–3
Eörsi, G. 110 innovation 90
Equator Principles 319, 320 interstate externalities 64–5, 82–3
Erasmus, G. 162, 163 market integration argument 58,
Erhard, W. 242 66, 68–9, 88, 91–2
Eritrea 117 public choice perspective 78, 79,
Estonia 112, 117 80
Esty, D.C. 393, 396 regulatory competition 70–71, 72,
ethics 195, 242, 243, 317 73–5, 76–7, 84–5
European Commission 16, 37–8, 40, 50, safety and health standards 63, 66
64, 68–9, 79, 80, 395 scale economies 66
European Competition Network (ECN) transactions costs 67, 86
37 environment 391, 392, 393–4, 395,
European Convention on Human Rights 396, 401, 406, 407
(ECHR) 152, 156, 434 centralization 412
Art 2: right to life 402, 433, 441 free trade 396, 397–8
Art 6: fair trial 140, 351–2 greenhouse gases 390, 427
Art 8: private and family life 402 protectionism 409
First Protocol Art 1: enjoyment of financial regulation of 234, 239
possessions 233, 371–3, 377 internal market 355
European Court of Human Rights 140, legitimacy and democracy in 41–5,
351, 369, 371, 373, 377, 402, 434 50–51, 407
476 Globalization and private law