What we have here is a lack of communication


This article originally appeared in Agenda magazine. Check out the current issue here.

Among the many pitfalls facing foreign investors overseas, many can be categorized under “similarities and differences”. Western clients in China often ask me how court proceedings for a complex business dispute can be closed after a single day or express their frustration with the lack of evidence to rely on in a dispute. Chinese companies going to the US or UK face long and complicated business deals and very high legal fees. Why do these countries make it so difficult for foreign investors?

In many cases, the answer to this question is that these differences have nothing to do with cross-border transactions but are the consequence of a fundamental difference in legal systems, between Common Law and Civil Law jurisdictions. While this may seem like an esoteric distinction best left in the classroom, it turns out not only to have a significant effect on practical matters such as drafting contracts and resolving commercial disputes. , but also on the very state of mind of lawyers and managers.

The fundamental differences between the two systems go back to their historical roots. Civil law, the older of the two systems and the type of jurisdiction we have in China as well as continental Europe and parts of Latin America, Africa and Asia, comes to us from Rome. . What have the Romans ever done for us? They gave us a legal system, codified in the 6th century by Justinian Corpus Juris Civilis, also known as the Justinian Code, and later modified via the Napoleon Code and the German Civil Code, used by the majority of the world’s nations and based on a body of law created by the legislative process.

Common Law is an amalgamated product of Merry Olde England and his successive waves of conquerors and immigrants. Although the historical antecedents of many aspects of the structure of Common Law can undoubtedly stretch back thousands of years, the modern version of the Common Law system, including many of its institutions, was put in place by the King Henry II in the 11th century. Today, in addition to the United Kingdom itself, common law jurisdictions include the United States, Australia, Canada, Hong Kong and many other countries of the Commonwealth or former British colonies. Contrary to the emphasis that civil law places on legislation as the primary source of law, common law arose out of individual court decisions, called “precedents,” and binding on subsequent lower court decisions.

As striking as some of these differences are, most countries have legal systems that reflect aspects of both common and civil law structures. Much of American law, for example, is now governed by legislative codes, both federal and local. In civil law countries like China, the higher courts regularly collect and comment on important decisions which are then cited, de facto otherwise de jure, as binding precedents.

For foreign investors, perhaps the most familiar manifestation of the differences between legal systems concerns the drafting of contracts. Traditionally, contracts drafted for use in civil law jurisdictions are brief with broad language. Because any possible dispute will be decided on the basis of codified law, there is no need to simply reaffirm these legal principles in a trade agreement. In contrast, the traditional common law contract is long, detailed and jam-packed with definitions, an attempt to best describe the intention of the parties, since codified law will fail to fill in the gaps. Hundreds of years of legal precedent guide common law lawyers on what this contractual language should look like.

From the 1980s, when the first waves of foreign investment hit China, companies in common law countries were more than uncomfortable with the standard two- or three-page joint venture contract template published by the Department of Commerce and used by all states. owned companies. It was not a product of authoritarian capitalism or a historical echo of pre-1949 China, but rather a typical civil law agreement, at least in terms of duration. Ironically, these templates often took a cut-and-paste approach to drafting contracts and were cobbled together with bits of mostly unnecessary legislative verbiage.

In the decades that followed, the practice of international trade law was heavily influenced by multinational law firms from the United States and the United Kingdom. Therefore, the typical cross-border agreement today borrows more from the detailed approach of common law than the concise style of civil law.

While the style of contract drafting may not be the stark contrast it used to be, the legal process is, and foreign investors often do not appreciate the scope of these differences until they are faced with their own dispute. Litigation in common law jurisdictions is adversarial, with a neutral judge often relegated to arbitrator status, while opposing lawyers struggle to find the truth, often through a thorough pre-trial investigation. , or discovery, cross-examination of witnesses at trial, and much pleading in court. Civil law litigation, often called inquisitorial, places the judge at the center in a much more active role, questioning witnesses and applying the facts to written law.

Doing business abroad is difficult enough at the best of times, but when you find yourself in a country with a fundamentally different legal system from yours, it can be an on-going exercise in frustration from the early stage. initial agreement to dispute resolution. Understanding these differences is an important step not only in knowing the environment in which you operate and your legal options, but also the state of mind of your partners and competitors.

© Stan for China Hearsay, 2012. | Permalink | No comments | Add todel.icio.us
Article keywords: civil law, common law, contracts, dispute resolution

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