Lex mercatoria in international contracts: UNIDROIT Principles, the CISG and choice of law for a Spanish company

Lex mercatoria is the non-State law of international trade: customs and rule sets such as the UNIDROIT Principles, Incoterms and UCP 600.

Before an EU state court it works as contract terms, while in international arbitration parties can choose it directly.

For a Spanish exporter, the choice of law shapes late-payment interest, currency risk, penalties and damages.

Below: what lex mercatoria means and what it consists of, how the UNIDROIT Principles relate to the UN Convention on Contracts for the International Sale of Goods (CISG), which law governs a Spanish company’s contract when the parties have not chosen one, and how that choice changes the money in the deal.

The example is an illustrative €3 million export contract of a Spanish SL, with figures for contracts from €1 million to €5 million.

The contract and the governing law clause are drafted by a lawyer; our part is to work out what each clause is worth.

What lex mercatoria means

Lex mercatoria, the “law merchant”, is the set of rules created by international trade itself rather than by any national parliament.

In the Middle Ages it consisted of the customs of fairs and ports; today it is written rule sets prepared by international organisations and chambers of commerce, together with settled practice in each industry.

The point is to give parties from different countries neutral rules that a seller in Valencia and a buyer in Singapore read the same way.

There is no fixed list, and lawyers disagree about where lex mercatoria ends. It is usually taken to include:

• The UNIDROIT Principles of International Commercial Contracts: a general part of contract law covering formation, interpretation, performance, change of circumstances and liability.
• Incoterms of the International Chamber of Commerce (ICC): who pays for carriage and insurance, and when the risk of loss passes to the buyer.
• UCP 600 of the ICC: the rules for letters of credit used by banks.
• Trade usages and practice: standard forms and clauses repeated across thousands of deals.

The 1980 Vienna Convention, the CISG, is not lex mercatoria in the narrow sense: it is a treaty ratified by States, and in Spain it is part of the law in force.

But it grew out of the same practice, and in disputes it works alongside the UNIDROIT Principles, which are often used to fill its gaps.

What lex mercatoria consists of and how each part becomes binding

The UNIDROIT Principles: what they are and when they apply

UNIDROIT is the International Institute for the Unification of Private Law in Rome.

It published the Principles of International Commercial Contracts in 1994 and updated them in 2004, 2010 and 2016; the 2016 edition is the current one.

They are neither a treaty nor a statute, and no State ratifies them. Their force comes from parties or arbitrators choosing them.

The Preamble lists the cases: the Principles apply when the parties have agreed that their contract be governed by them; they may apply when the parties have agreed on “general principles of law”, the lex mercatoria or the like, and when no law has been chosen at all; and they may be used to interpret or supplement international uniform law instruments and domestic law.

The last point matters in practice: the Vienna Convention, for instance, does not set the rate of interest on late payment, and arbitrators often take the rule from the Principles.

For a finance team, five articles stand out:

• Art. 6.1.9, currency of payment: if a debt is expressed in a currency other than that of the place for payment, the debtor may pay in the local currency at the rate prevailing when payment is due, unless the parties agreed that payment be made only in the contract currency.
• Arts. 6.2.1–6.2.3, hardship: where events fundamentally alter the equilibrium of the contract, the disadvantaged party may request renegotiation but may not withhold performance; failing agreement, a court or arbitrator may adapt or terminate the contract.
• Art. 7.4.9, interest for failure to pay money: the average bank short-term lending rate to prime borrowers for the currency of payment at the place for payment.
• Art. 7.4.12: damages are assessed in the currency of the obligation or in the currency in which the harm was suffered, whichever is more appropriate.
• Art. 7.4.13: an agreed payment for non-performance is due irrespective of the actual harm, but may be reduced to a reasonable amount where it is grossly excessive.

The Vienna Convention (CISG) and Spain

Spain acceded to the Vienna Convention on 24 July 1990, and it has applied to Spain since 1 August 1991.

As of November 2026 it has 97 Contracting States, including almost all EU countries, the United States, China, Japan, Brazil, Mexico, Switzerland and Türkiye. Non-parties include the United Kingdom, Ireland and India.

The Convention applies to contracts for the sale of goods between parties in different States when both States are Contracting States (art. 1(1)(a)) or when the rules of private international law lead to the law of a Contracting State (art. 1(1)(b)).

The parties may exclude it or derogate from its provisions (art. 6). It does not govern the validity of the contract or of any of its terms (art. 4), which is left to national law.

The practical takeaway for a Spanish SL: if the buyer is in Germany, France or the United States and the contract is silent, the deal will almost certainly be governed by the CISG rather than the Spanish Civil Code.

Spain made no reservation against art. 1(1)(b), so the Convention also applies to a buyer in the United Kingdom if the contract is governed by Spanish law.

Many companies exclude the CISG out of habit, without working out what they lose and gain; the figures below show how the money changes.

How the governing law of an international contract is chosen

In the EU, the law of a contract is determined by the Rome I Regulation (593/2008), which a Spanish court applies to any international contract, including one with a company outside the EU.

• Party choice (art. 3). A contract is governed by the law chosen by the parties, expressly or as clearly demonstrated by the contract. The choice may cover the whole contract or only part of it.
• No choice (art. 4). A sale of goods is governed by the law of the country where the seller has its habitual residence; services by the law of the service provider’s country. For a Spanish exporter, a silent contract means Spanish law and, through it, the CISG.
• Lex mercatoria in court. The Regulation does not prevent parties from incorporating a non-State body of law or an international convention into their contract by reference (recital 13). But before a state court such rules operate as contract terms, while the governing law remains the law of a State, and its mandatory rules apply on top of the UNIDROIT Principles.
• Overriding mandatory provisions (art. 9). Rules a State regards as crucial for its public interests apply whatever law was chosen, for example sanctions and currency controls.

International arbitration offers more freedom.

Spain’s Arbitration Act 60/2003 provides that in international arbitration the arbitrators decide according to the “rules of law chosen by the parties” and, absent a choice, those they consider appropriate; in all cases they decide in accordance with the contract and take applicable usages into account (art. 34).

So making a contract directly subject to the UNIDROIT Principles or lex mercatoria only works together with an arbitration clause.

In practice a common formula is “Spanish law including the CISG, with gaps filled by the UNIDROIT Principles”: national law gives predictability, the Principles give neutral rules for the foreign party.

The financial side: how the choice of law changes the money

A lawyer chooses the law with an eye on the forum, timing and enforceability.

A finance team looks at something else: under each option, late-payment interest, penalties, currency differences, price revision and damages are calculated differently. Here is an illustrative example.

Illustrative example. A Spanish SL sells industrial equipment to a buyer in another EU country for €3,000,000.

A 30% advance of €900,000; the 70% balance of €2,100,000 is due 60 days after delivery.

Cost is 85% of the price, of which €1,200,000 is steel and components; the planned margin is €450,000, or 15%. All figures are illustrative and were calculated with a script.

Late-payment interest: Directive 2011/7/EU and Spain’s Ley 3/2004

The EU Late Payment Directive 2011/7 sets statutory interest at no less than the ECB reference rate plus 8 percentage points, a business-to-business payment period of no more than 60 days unless expressly agreed otherwise and not grossly unfair to the creditor, and minimum compensation for recovery costs of €40.

Spain transposed it more strictly.

Under Ley 3/2004: if the contract sets no term, payment is due 30 days after receipt of the goods; the parties may extend it, but never beyond 60 days; interest is the contractual rate or, failing agreement, the ECB rate plus 8 points; plus a fixed €40 and documented recovery costs above that; a clause excluding interest or compensation is void.

In the second half of 2026 the statutory rate is 10.40% a year (ECB rate of 2.40% plus 8 points).

Under the CISG, by contrast, a buyer who pays late owes interest, but the Convention does not state the rate (art. 78).

The rate is taken from the law applied to fill the gap or from the UNIDROIT Principles, the average short-term bank lending rate to prime borrowers. The difference is noticeable:

The 4% rate is an illustrative benchmark for a bank loan to a prime borrower, not an official figure.

For the seller, the lesson is to write the late-payment rate into the contract as a number or formula, such as “ECB rate + 8 points” or 12% a year; at 12%, the same 90 days on our contract cost €62,137.

For the buyer it is the reverse: silence under Spanish law costs more. How a buyer’s payment terms turn into the seller’s cash shortfall is covered in Cash gap.

Currency and exchange-rate risk

Suppose the buyer insists on a dollar price: $3,300,000 at 1.10 dollars per euro, the same €3,000,000. The $2,310,000 balance arrives a few months later:

• at 1.20 dollars per euro the seller receives €1,925,000 instead of €2,100,000, a loss of €175,000, or 39% of the planned margin;
• at 1.00 it receives €2,310,000, a gain of €210,000.

Neither the Vienna Convention nor Spain’s late-payment law protects against exchange rates: the risk sits with the party whose currency differs from the contract currency.

Under the UNIDROIT Principles, the debtor may pay in local currency at the rate on the payment date unless the contract requires payment only in the contract currency, so the contract states the payment currency, the rate source and the fixing date.

The rest is financial tools: a forward, a currency account with costs in the same currency, a larger advance.

Where to hold a company’s currency is covered in Business bank account in Spain.

Penalty clauses

An illustrative clause: for late delivery the seller pays 0.5% of the price per week, capped at 10% of the price.

Six weeks’ delay costs €90,000, and the €300,000 cap is reached in week 20. What happens to this amount in a dispute depends on the law:

• Spanish Civil Code: the penalty replaces damages and interest unless agreed otherwise (art. 1152); the judge reduces it only where the obligation was partly or irregularly performed (art. 1154).
• UNIDROIT Principles: the sum is due irrespective of actual harm, but may be reduced to a reasonable amount if grossly excessive (art. 7.4.13).
• The CISG is silent on penalty clauses and leaves their validity to national law (art. 4).

Two financial rules follow.

First, if the seller wants the buyer to be able to claim damages on top of the penalty, or, conversely, wants liability limited to the penalty, the contract must say so: under Spanish law the default is that the penalty replaces damages.

Second, compare the penalty cap with the margin. In our example the €300,000 cap equals two thirds of the deal’s planned profit.

Hardship and price revision

Suppose steel and components rise 40% between signing and production. Cost goes up by €480,000 against a €450,000 margin, and the contract now loses €30,000. Can the price be revised?

• The CISG exempts a party from liability only for an impediment beyond its control that it could not reasonably have taken into account at the conclusion of the contract, avoided or overcome (art. 79). It has no separate rule for performance that has merely become more expensive.
• The UNIDROIT Principles allow a request for renegotiation where the equilibrium of the contract is fundamentally altered, the events occurred after conclusion, could not reasonably have been taken into account, are beyond the party’s control and their risk was not assumed by it; a court or arbitrator may then adapt the contract.
• The Spanish Civil Code has no general hardship provision. The Supreme Court applies the rebus sic stantibus doctrine, revising a contract after an unforeseeable change of circumstances, only as an exception; force majeure excuses liability for events that could not be foreseen or avoided (art. 1105).

Rather than relying on hardship, write a formula. An illustrative clause: if a materials cost index moves by more than 10%, the change above that threshold is split equally.

In our case that adds €180,000 to the price: the seller keeps a €150,000 margin (4.7%) instead of a loss, and the buyer pays less than the full cost increase.

How to build such scenarios into the numbers in advance is covered in Financial model: calculations and scenarios.

Damages under the Vienna Convention (arts. 74–78)

Under the CISG, damages equal the loss, including loss of profit, but may not exceed what the party in breach foresaw or ought to have foreseen at the conclusion of the contract (art. 74).

If the contract is avoided and a party has made a substitute transaction in a reasonable manner and within a reasonable time, it recovers the price difference plus further damages (art. 75); without a substitute transaction, the difference from the current price (art. 76).

A party must take reasonable measures to mitigate the loss, or damages are reduced by the amount that could have been avoided (art. 77).

An illustrative case: the buyer refuses to take the equipment, the seller avoids the contract and two months later sells it to another customer for €2,550,000.

Storage and extra carriage cost €45,000; delivery to the first buyer that is no longer needed saves €20,000.

Had the seller waited six months and sold the equipment for €2,400,000, the buyer could argue that €150,000 of the loss was avoidable (art. 77).

The financial lesson is to document every figure: offers from new buyers, prices, storage costs.

In a dispute the winner is not the party with the larger loss, but the one that proves it.

Whether the company can absorb such a scenario without a loan is what a cash budget shows.

What to check in the contract and common mistakes

1. No governing law chosen. For a Spanish exporter this means Spanish law and almost always the CISG. The problem is not that, but that nobody has priced the consequences.
2. CISG excluded by habit. Exclusion changes the rules on notice periods, damages and interest. Decide after running the numbers, not from a template.
3. “Governed by lex mercatoria” without arbitration. Before a state court this will not replace the law of a State; you need an arbitration clause or a specific national law plus the UNIDROIT Principles to fill gaps.
4. No late-payment rate. The gap between 10.40% and a bank rate on a €5 million contract over 90 days exceeds €55,000.
5. Currency without a rate source. State the contract currency, payment currency, rate source and fixing date.
6. Penalty unrelated to damages. Under Spanish law it replaces damages by default; if the parties want otherwise, they must say so.
7. No price revision formula. Statutory hardship is the exception; an index clause with a threshold is more reliable.
8. Incoterms without version and place. “FCA” without “Valencia Incoterms 2020” does not say where risk passes or who pays.

The financial terms of a large contract are best reviewed together with the deal’s financial model: how payment terms, exchange rates, penalties and a cost-increase scenario change the margin and the cash in the account.

You can do this with us; the Financial modeling page describes how such a model is built.

If the contract is part of a company acquisition, the obligations under it are reviewed in due diligence.

Frequently asked questions

What is lex mercatoria in simple terms?

It is law created by international trade itself: customs, industry practice and rule sets such as the UNIDROIT Principles, Incoterms and UCP 600. It is made by the business community and international organisations rather than by States, which makes it neutral for parties from different countries.

What are examples of lex mercatoria?

The UNIDROIT Principles of International Commercial Contracts, the ICC’s Incoterms 2020 and UCP 600, and the customs and standard clauses of individual industries. The 1980 Vienna Convention is a treaty, but it grew out of the same practice.

Which edition of the UNIDROIT Principles is current?

The current edition is from 2016, following those of 1994, 2004 and 2010. The Principles are not ratified: they apply when parties or arbitrators choose them, and they are used to interpret and supplement national law and conventions.

Does the CISG apply in Spain?

Yes, Spain has been a Contracting State since 1 August 1991. The Convention applies to sales of goods with a buyer in another Contracting State and also when the contract is governed by Spanish law. The parties may exclude it expressly in the contract.

Can lex mercatoria be chosen as the governing law?

In international arbitration, yes: Spain’s Arbitration Act lets parties choose “rules of law”, not only the law of a State. Before an EU state court, lex mercatoria works as contract terms, and the governing law remains the law of a State.

Does the CISG regulate penalty clauses?

No. The Convention does not regulate penalty clauses and leaves their validity to national law. Under Spanish law a penalty replaces damages and interest by default, while under the UNIDROIT Principles a grossly excessive amount may be reduced.

What is the late-payment interest rate between businesses in Spain?

The contractual rate or, if the contract is silent, the ECB rate plus 8 points under Ley 3/2004. In the second half of 2026 this is 10.40% a year, plus a fixed €40 and documented recovery costs.

What is the difference between hardship and force majeure?

Force majeure excuses liability when performance is prevented by an impediment beyond a party’s control. Hardship applies when performance is still possible but the equilibrium of the contract is fundamentally altered; the affected party may then request renegotiation.

Key points on lex mercatoria in international contracts

• Lex mercatoria is the non-State law of trade: the UNIDROIT Principles, Incoterms, UCP 600 and industry usages.
• The Vienna Convention has applied in Spain since 1991 and almost always governs a Spanish company’s exports unless excluded.
• Before an EU court, lex mercatoria works as contract terms and the governing law is the law of a State; it can be chosen directly in international arbitration.
• The choice of law changes the money: late-payment interest (10.40% under Ley 3/2004 in the second half of 2026, or no stated rate under the CISG), penalties, price revision and damages.
• Financial terms, such as the interest rate, currency and rate source, penalty cap and price formula, should be written as numbers and tested in a model before signing.

Sources

• UNIDROIT Principles of International Commercial Contracts 2016 — unidroit.org, text (PDF).
• UN Convention on Contracts for the International Sale of Goods (Vienna, 1980) — text (UNCITRAL), status.
• Regulation (EC) 593/2008 (Rome I) — EUR-Lex; Late Payment Directive 2011/7/EU — EUR-Lex.
• Ley 3/2004 on late payment — BOE; rate for the second half of 2026 — BOE, 01.07.2026.
• Arbitration Act 60/2003, art. 34 — BOE; Civil Code, arts. 1105, 1152–1154 — BOE.
• Incoterms 2020 and UCP 600 — International Chamber of Commerce (ICC).