Lex Mercatoria, Blockchain & Jur

Sushma Sathyanarayanan
Jur.io
Published in
6 min readSep 25, 2018

What is Lex Mercatoria?

Lex Mercatoria is a well-known concept in the legal and business fraternities. It is a set of norms followed by merchants throughout the trading networks developed in Europe. These set of norms were developed by the traders to ease their business while engaging with traders from different parts of Europe. It evolved as a set of customs and practices and were governed or regulated by a system of merchant courts that were established along the main trade routes for trades done, both by sea and by land.

This was one of the first rules established for regulating the aspects of international trade. It emphasized on the concepts of contractual freedom of the traders, alienability of the traded/trading property and decide cases based on ‘ex aequo et bono’, meaning that the cases were decided based on the goods involved and the right of the party on that good, in other words, ‘from equality and conscience’. The person authorised to make decisions based on this is not bound by the legal obligations and regulations but is bound to take decisions based on what is just and fair.

Though this is the skeletal idea of what Lex Mercatoria is, we can see it evolving with time and developing new concepts. Let us classify it into 3 stages; first- as the Lex Mercatoria of the middle ages, the time the concept was developed, where they were a set of norms followed by traders for the purpose of trade, which were relatively free from the clutches of the regional rules; second — during the 18th century while renaissance was at its peak, where it evolved into an informal and flexible system of rules, establishing courts and arbitrators to decide issues that arose out of trade disputes, forming a foundation for the emergence of private international law focused on trade; and lastly — the transition of these set of soft laws into a hard and codified set of rules, governing all aspects of trade as a law. The UNIDROIT Principles of International Commercial Law is one of the best examples of this stage and it still serves as a model law for many nations. This phase also paved way for the establishment of the arbitration forums, whose awards are enforceable as that of a court.

All traders honoured and abided by these merchant rules because of their reputation; the reputation of the awards given based on these rules were just and fair and mainly since these were the rules developed by the merchant community themselves and any deviance would result in excommunication from the fraternity.

These rules are so nuanced and specific that a lot of codified laws in various countries are based on this or are combined/extracted concepts of this merchant law. The Uniform Commercial Code of the United States is an excellent example of this, where the core principle of the Code is extracted from Lex Mercatoria.

Jur: a blockchain-based Lex Mercatoria

We all know and agree that the conventional methods of dispute resolution, be it the court systems or ADRs, are time-consuming and expensive, and that the concept of Lex Mercatoria was created by ancient traders to overcome the obstacles of this tedious process in order to get quick justice served in situations of dispute. With constant evolution of time and technology, blockchain and smart contracts may serve the need of international business in a similar fashion as Lex Mercatoria.

There are many platforms that offer online contract execution and dispute resolution, but they are all centralized and sometimes expensive too! Blockchain technology is giving a way to create options of an inexpensive and time effective platform for this cumbersome issue.

Blockchain, a decentralized system does not have any strings attached and everything is stored on secure blocks, that are immune to tampering and overwriting as all transactions are stored in a chronological order and more importantly any edits that need to be made has to get the approval of all the systems in that particular network of blockchain, which adds an additional layer of security compared to a regular digital platform.

Jur is one such platform that is established on a blockchain, that offers an innovative way to create and execute contracts on the system. With this flexibility, users can create smart contracts that can be drafted/coded to meet their specific needs of business. It is the first consensus-based dispute resolution platform that works on the inherent instinct of human nature of having to be right.

Jur is therefore a tool to create simplified and automated rules and contracts as well as to swiftly resolve dispute so that international business relationships may be managed in a smooth way.

How this works is that, when the users enter into a contract, the system provides for the creation of an escrow, to hold the project value, which is untampered by either parties and this amount is released upon completion of the contract. And in case of a dispute, the system has various other users, the JUR token holders known as Oracles, ready to be a judge at any given point of time, and if a dispute arises, they vote in favour of the party they think is right, and that party who gets the majority vote is considered the winner of the dispute. An entire dispute is solved within hours as against the conventional means that would have taken months or even years to solve the same dispute. This ground-breaking thought is something that will prove very business friendly all over the world.

Jur for the international business

This quick, cost effective, unbiased and tamper-proof system of justice delivery will be an asset in any business model and will put them in the forefront of their market. Since no company is free from having disputes, be it a small clothing company or a big pharmaceutical giant, the quick dispute resolution will give them time and money to invest in expanding their business and create a niche in their arena of business.

The secure nature of blockchain will also protect the businesses from unwanted harm of reputation! How? I can explain — when a company enters into disputes, it comes to the public eye, with each progressing day of the process, people create opinions on the issue and might get biased against, harming their reputation and market share. And if the company loses even 5% of their market share every year the dispute is carried on, imagine this happening over a period of 5 years, that is 1/4th of their market share assuming that the 5% is constant over this period (again costing huge revenue along with the dispute costs!). It is also possible for a competitor to take advantage of this situation and might gain an upper hand in the market. Do companies want this? I guess not!

I understand there was no choice earlier for the process of dispute resolution. But now, we have a choice, an efficient system of dispute resolution, that is fair, just, time efficient and secure. Do we still send out had written letters and telegrams if we need to send across any information, no! We use technology aided systems like emails and text messages to get the information across in a time effective manner and this system also costs a fraction of the cost of having to send a letter. Similar to this transition from letters to emails, we can foresee and expect a change in the trend of businesses to move from the conventional means of dispute resolution to the technologically advanced systems.

Jur as a system offers a secure platform for its users to create and execute smart contracts saving them the costs of having to engage in the contract creation processes, a process of direct and safe settlement of the dispute awards which is not only time and cost efficient but also transparent; and with the current advanced technological trends and the need to reduce cost and time consumed for various legal processes from contract drafting to dispute resolutions, I feel safe to say that Jur will be an asset in the portfolios of any business.

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Sushma Sathyanarayanan
Jur.io
Writer for

LLM graduate from ITCILO, blockchain enthusiast and a travel lover!