Horatia Muir Watt
When the bankruptcy of Lehman Brothers Holdings, Inc. (LBHI) produced shockwaves throughout the global financial market and calls for regulation of systemic risk, the role of private international law was hardly a central preoccupation with either financial institutions or the general public. It is well known that Lehman’s over-the-counter (OTC) derivatives portfolio (containing over 900,000 OTC derivatives transactions) was governed by the default provisions of the ISDA Master Agreement. On the terrain of private law, the question arose in the aftermath of the crisis as to whether the Master Agreement played any meaningful role in Lehman Brothers’ bankruptcy and its catastrophic outcome and more generally whether a modification of its terms could reduce the systemic risk associated with derivatives transactions. In respect of the transnational dimension of the Agreement, a more theoretical debate concerned the extent to which attempts to create global certainty by the financial industry through the use of standardised agreements could be seen as a present-day renewal of the lex mercatoria. Might privately created norms provide an alternative frame of reference for the governance of contracts concluded in global financial markets? In such a perspective, the interference of divergent local laws was seen to thwart the operation of uniform contractual terms. However, the presence of a conflict of laws in relation to the interpretation of the ISDA Master Agreement also suggests that private international law plays an essential role in constituting the rules of the game against the backdrop of which the Master Agreement is given legal effect.
Horatia Muir Watt
The traditional paradigm which frames (international) law’s apprehension of transnational authority leads it to deny legal status to norms that are not state- endorsed or enforced. It explains why the allocatory function of the conflict of laws is not being fulfilled in respect of transnational private authority. Moreover, by disqualifying alternative forms of legitimacy, the methods of this discipline, have worked paradoxically to dis-embed authority in the global economy. This serves as a strong warning signal for the private ‘branch’ of international law, whose recent record of disconnection from the rise of non-state power has left it impotent in both war and crisis. It is argued in this respect that the fundamental difficulty from a global governance perspective is to ensure the re-allocation of responsibility to the sites of non-state authority that still fall outside international law’s empire.