Navigating Legal Systems in a Globalised World: Common Law vs. Civil Law

Are you a small or medium-sized business (SME) ready to embark on the global stage? In our increasingly globalised society, businesses are expanding internationally to unlock new growth opportunities, access untapped markets, leverage diverse talent pools, and benefit from cost advantages. However, alongside this growth comes inevitable legal obstacles. These can materialise in the form of divergent employment contracts, varied business licences required by regulatory authorities, and the establishment of articles of association to define the legal existence of the company. Ensuring compliance with these legal requirements is crucial for the successful functioning of organisations. However, what constitutes compliance may differ between legal systems. 

Two primary legal systems adopted by countries worldwide are common law and civil law. Understanding the core differences between these systems is essential for businesses operating in different jurisdictions. 

This article will discuss the core differences between the common and civil law systems and how it may affect you.

Origin

The civil law system originated in ancient Rome. It is characterised by comprehensive codes of law, relying on written laws and its judicial interpretation in application. It emphasises codified laws as the primary source of legal authority. This is common in many European countries. 

The common law system emerged in mediaeval England. It is based on legal precedents and case law, where judges play a significant role in legislative development. Their decisions establish legal principles. 

Contract Interpretation

Interpretation of contracts varies significantly between legal systems. Common law, which prioritises the freedom of contract, aims to facilitate free-market transactions whenever possible. This is evident in the subjectivity of tests such as the "fairness" test and "reasonableness" test under statutes like the Consumer Rights Act 2015 and Unfair Contract Terms Act 1977. Terms within these statutes are binding on consumers and businesses only if deemed fair or reasonable. This flexibility reduces the level of certainty and predictability, necessitating companies to draft contracts with more stringent language.

On the other hand, civil law provides greater certainty by offering a higher level of predictability. This difference can significantly impact how contracts are drafted, negotiated, and enforced. Companies operating in civil law jurisdictions must navigate more rigid contractual interpretation rules, which provide a higher level of certainty as there is less room for interpretation. 

Understanding these differences enables companies to better tailor their contract drafting and consider adjustments to existing contracts when expanding into different jurisdictions to establish stronger legal protection.

Nature of Legal Advice and Education

The nature of legal advice can also differ between legal systems, influenced by the approach to legal education taken in different jurisdictions. 

Under a common law system, lawyers primarily focus on analysing case law and judicial reasoning behind judgments. This allows them to develop a deeper understanding of common law, which is primarily built on case law precedents. 

In contrast, lawyers in civil law systems primarily focus on statutory interpretation as civil law is rooted in statutes. Therefore, it is not only legislation that differs between jurisdictions; the approach taken by lawyers in addressing legal issues may also vary. When seeking legal advice in different jurisdictions with different legal systems, it is crucial to consider the approach and expertise of lawyers to ensure alignment with the specific legal system.

Role of the Judiciary

The role of the judiciary also differs between common law and civil law systems. In common law systems, the jury determines the facts of each case, while the judge later decides the applicable law based on those facts. This hybrid approach allows for greater flexibility as societal values are instilled through jury participation, enabling the law to reflect community expectations. 

On the other hand, civil law systems assign judges the responsibility of determining both facts and law. This decreased flexibility increases certainty and reduces the risk of bias. In common law systems, public opinion can indirectly influence legal outcomes through jury participation, potentially impacting the interpretation and application of the law. 

Consequently, companies may need to adapt their litigation strategies to align with the differing legal systems.

Comparing Benefits: Running a Business in Common Law vs. Civil Law Jurisdictions

Here's a table outlining the benefits of running a business in a common law jurisdiction and a civil law jurisdiction:

Summary of Differences between Civil law and Common law legal system

Key differences between common  law and civil law jurisdictions are set out below: 

Conclusion

Civil law and common law systems represent two distinct approaches to legal governance, emphasising legal certainty and flexibility, respectively. Understanding the differences between these systems is crucial for businesses and individuals operating in different jurisdictions. By grasping the nuances of civil law and common law systems, companies can successfully navigate legal complexities, ensure compliance with local regulations, mitigate risks of non-compliance, and make informed decisions in an increasingly globalised world.

FAQ

1. Is the common law system better for business owners?

The question of whether the common law system is better for business owners is subjective and depends on various factors. It's important to note that different legal systems have their own advantages and disadvantages, and what may be beneficial for one business owner might not necessarily be the same for another. 

Regarding this issue, Min Hwan Ahn, a New York attorney and Founder of ez485, provides his own ideas - Business owners often consider the common law system advantageous because it emphasizes individual rights and encourages active participation in negotiations and dispute resolution. Providing binding precedents to a business offers predictability, which is essential for planning and decision-making. 

Running a business under common law allows for more flexibility in interpretation of laws since rulings can be tailored to specific circumstances, according to Dan Xie, CEO of Sunmood Divorce Consultancy. This, however, also means that there is less certainty than when laws are clearly laid out in statute form, like in civil law.

2. Are there any advantages of running a business in a civil law jurisdiction?

Steve Sacona, a Legal Writer at Top10lawyers, provides some fundamental information that  reliance on codified statutes and a comprehensive legal framework, provides advantages such as clarity, certainty, strong consumer protection, and adherence to written law to businesses in a civil law jurisdiction.

Travis Christiansen, an attorney specializing in Criminal, Divorce & Custody, Estate Planning, then further explains this by giving some factual examples - In a civil law jurisdiction there are usually two judges - investigative and trial. Most of the evidence is gathered and weighed before the trial by the investigative judge. The trial judge reviews what was submitted by the investigative judge and reviews the laws, and makes a decision. In civil law countries then the laws guide judges in their decisions, and less weight is given to interpretations of those laws in previous cases. Businesses might see that as an advantage because decisions may be more consistent and expected.

3. Why is an understanding of different legal systems around the world useful in business?

Riley Beam, a managing attorney at Douglas R. Beam, P.A. is of the opinion that a company's understanding of the various legal systems around the world helps it identify and understand the laws and regulations that apply and their scope in relation to its business activities.

By recognizing the legal nuances in various jurisdictions, businesses can tailor their strategies to comply with local rules and safeguard against legal risks. This insight aids in strategic decision-making, contract negotiations, and international expansions, fostering smoother cross-border transactions. Ultimately, a global legal perspective helps businesses proactively address legal challenges and seize opportunities while maintaining compliance and ethical integrity.

4. What is the common law? What is civil law?

The common law is a legal system with its primary source of legislation based on case-precedent administered by the judiciary and legislation enacted by the leading legislative body. The civil law is a legal system with its primary source of legislation based on legislation enacted by the leading legislative body.