International Contracts - Law of Contract - Lecture Slides, Slides of Contract Law

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International contracts – common law and civil law  Comparison – common law - v - civil law systems  Drafting styles  Concept of good faith  Differences at the pre-contract stage  Substantive differences in contractual terms in common law and civil law contracts Docsity.com Comparison: common law versus civil law systems System Feature Common Law Civil Law Continuity of Legal system Evolutionary Revolutionary Major Source of Law Custom and Practice Legislative Statutes Reliance on precedent Yes (Strong) No (Weak) Judicial role in law-making Active and creative Passive and technical Role of Legal Scholarship Secondary and peripheral Extensive and influential Judicial review of Statutes & Executable Actions Yes No Major Decision Stage Trial Investigation and examination Trial Format Accusatorial/confrontational Inquisitorial/collaborative Use of Argument and Debate Extensive and fundamental Modest and restrictive Style of Legal Reasoning Inductive Deductive Trial Emphasis on: Procedural correctness Factual certainty Evidentiary Rules Formal and restrictive (exclusionary rule) None (all evidence considered) Role of Lawyers during trial Primary Secondary Function of lawyers Debate and oppose Advise and inform Judge’s role during trial Referee/umpire Director/examiner Selection of judges Political appointment from practising lawyers Merit advancement from judicial specialists Status of judges Political VIPs Mid-level civil servants Citizen trial participation Juries Members of judicial panels Appellate review focus Procedural Procedural and substantive Unity of Court Structure Unified Court structure Diffused Court structures (multiple specialised courts) Docsity.com Role of good faith in the two legal systems (continued)  If a Party is required to act in good faith under civil law, there could be increased obligation to: – inform the other side of all relevant points that it could not discover otherwise during negotiation – observe reasonable diligence in the performance of pre-contractual and contractual obligations – exercise caution when varying terms in pre-contractual letters of intent or withdrawing from negotiations without reasonable justification  May need to manage the role of good faith: – Negotiating specific circumstances in which party will be liable for damages if negotiations breakdown – Try to avoid references to negotiating or acting in good faith Docsity.com Differences at the early stages Pre-contractual obligations Common Law  No liability if negotiations break down  ‘Agreements to agree’ are not legally enforceable Civil Law  Some jurisdictions allow liability for unfairly breaking off negotiations (for example France or Germany)  Commencement of negotiations can itself lead to contractual relationship between parties (i.e. Germany’s vorvertragliches Schuldverhältnis) NB: Common and Civil jurisdictions both have remedies for mistake and misrepresentation Docsity.com Differences at the early stages Negotiations Common Law  Detail needs to be spelled out – hard to get wording changed or rectified at a later stage by the English courts  Entire agreement clauses mean that English courts will not ‘look behind’ contract to negotiations to aid interpretation Civil Law  Emphasis on the common intention of the parties – even provisions that are clear can be modified if they do not properly reflect the intentions  Discussions and pre-contractual negotiations are used to assist interpretation Docsity.com Consideration English Law German Law Italian Law  Cannot enforce voluntary promises  ‘Bargains’ – each party must do something for the other  Court will not assess whether the consideration is fair (can be nominal)  No past consideration or consideration where one party is already legally obliged to act  BUT a promise contained in a deed is enforceable, even without consideration  In practice, lack of consideration is rarely an issue  Consideration is not necessary under German law for a binding contract to be entered into, but lack of consideration may change the nature of a contract (i.e. from a sale to a gift)  Under Italian law, contracts can be sinallagmatici, in which case each party has a reciprocal obligation toward the other party (e.g. sale), and contracts containing just one party’s obligations (e.g. gift)  Contracts can also be commutativi, in which case each party is certain that he will have to perform an obligation (e.g. lease), or aleatori, in which case a party could or could not be asked to perform his obligations according to some unforeseeable future events (e.g. insurance)  According to the category of each contract, different sets of rule (e.g. those concerning the fairness of the consideration) apply Docsity.com Price and other terms English Law German Law Italian Law  Freedom of contract – Parties can agree whatever price they want, even if it may appear unfair to an outsider  In Germany, the agreement of a price which is too low could constitute usury (Wucher) or could otherwise offend public morals (sittenwidrig)  Under Italian law, the Judge can terminate the contract if the price is disproportionate because one of the parties entered into such contract in a dangerous situation or in a situation of need Docsity.com Gap-filling English Law German Law Italian Law  Freedom of contract – Courts will rarely complete bargains for the Parties by gap-filling  Equally courts are reluctant to fill in the gaps – if the Parties mean something it should be included  Terms can be implied if the Parties meant to include them or unanimously assumed that they were a given  The contract must specify the essential elements of the agreement. If any elements are missing (for instance if no consideration is mentioned) the ‘fall back’ rules are provided by the rules of interpretation (written statutes, jurisprudence, and spirit of agreement)  Where ‘fall back’ rules do not lead to a result, the courts will look to the hypothetical will of the Parties to determine what provisions should have been included  The essential elements of the contract (i.e. the will of the parties, the object and the purpose or causa) must be specified  Typical contracts (i.e. those regulated by the law) enjoy specific default rules provided by the law  The courts can fill gaps by interpreting the will of the parties  Most legal systems will void a contract if not sufficiently certain, but there are usually legal provisions for ‘filling in the gaps’ Docsity.com Force majeure English Law German Law Italian Law  No specific doctrine  In extreme cases, the doctrine of frustration/impossibility might apply  Provisions for force majeure are drafted in contracts accordingly  Generally applicable doctrine of force majeure  In practice, the concepts of disappearance of the basis of the transaction (Wegfall der Geschaftsgrundlage) and impossibility (Unmoglichkeit) may relieve a party of its obligations  A party is not liable for the breach of a contract if such breach is due to an external factor which made the performance impossible (Impossibilità sopravvenuta)  The concept is slightly wider than the concept of force majeure: it also includes all the cases in which the performance becomes extremely difficult or expensive Docsity.com Unilateral changes to the contract English Law German Law Italian Law  Unilateral provisions are common, i.e. reference to a Party’s standard terms ‘as amended from time to time’  Unilateral provisions about performance are allowed in very few cases only  In the absence of clear wording, the courts will be slow to interpret a contract as containing unilateral provisions  Unilateral changes to the contract may be allowed  Some regulated subjects (e.g. banks, telecommunication providers, highways) can unilaterally modify the terms of their contracts with a general notice Docsity.com Third party rights English Law German Law Italian Law  Third parties cannot acquire rights under a contract unless they are a party to it, subject to some exceptions instigated by statute  Most commercial contracts specifically exclude the Contract (Rights of Third Parties) Act 1999, so third parties do not usually have rights  Provisions for third parties need to be considered and drafted explicitly (obligations for third parties cannot be established)  If there are no specific third party provisions in a contract, the courts may infer third party rights from the circumstances  It is possible to add in a contract provisions in favour of third parties  However, such provisions can be modified or eliminated before the acceptance by such third party Docsity.com Conclusion  As transactions become increasingly complex, we are more likely to operate in unfamiliar jurisdictions  It is crucial to be aware of the areas where there may be significant differences between the law we are used to and the law we are working with  We have examined a few areas today, but there are others so vigilance is needed  It is necessary to inform our commercial colleagues of areas where their normal expectations may not apply and to alert them to areas where extra care is needed  It is also important to understand how factors inherent in different legal systems influence the way contracts get negotiated and drafted so as to make the contracting process as effective as possible Docsity.com AMSTERDAM BRUSSELS DUSSELDORF FRANKFURT FUNCHAL* LISBON* ABU DHABI DUBAI [Hone Kon _] SHANGHAI TOKYO** ai LONDON MADRID MILAN PADUA PARIS ROTTERDAM “Sociedade Rebelo de Sousa in association with Simmons & Simmons ** Simmons & Simmons in association with TMI Associates Docsity.com