 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
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System Feature
Continuity of Legal system
Major Source of Law
Reliance on precedent
Judicial role in law-making
Role of Legal Scholarship
Judicial review of Statutes & Executable Actions
Major Decision Stage
Trial Format
Use of Argument and Debate
Style of Legal Reasoning
Trial Emphasis on:
Evidentiary Rules
Role of Lawyers during trial
Function of lawyers
Judge’s role during trial
Selection of judges
Status of judges
Citizen trial participation
Appellate review focus
Unity of Court Structure
Common Law
Evolutionary
Custom and Practice
Yes (Strong)
Active and creative
Secondary and peripheral
Yes
Trial
Civil Law
Revolutionary
Legislative Statutes
No (Weak)
Passive and technical
Extensive and influential
No
Investigation and examination
Accusatorial/confrontational
Extensive and fundamental
Inductive
Procedural correctness
Formal and restrictive (exclusionary rule)
Inquisitorial/collaborative
Modest and restrictive
Deductive
Factual certainty
None (all evidence considered)
Primary
Debate and oppose
Secondary
Advise and inform
Referee/umpire Director/examiner
Political appointment from practising lawyers Merit advancement from judicial specialists
Political VIPs
Juries
Procedural
Unified Court structure
Mid-level civil servants
Members of judicial panels
Procedural and substantive
Diffused Court structures
(multiple specialised courts)
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 The style of negotiating and drafting documents varies from legal system to legal system
 Rules of interpretation mean that parties to common law contracts are encouraged to specifically cover every detail, whereas a more allencompassing ‘spirit of the agreement’ approach is taken in civil jurisdictions
 As business becomes increasingly international, there is a trend towards a standardisation of contract terms
 BUT…
– it is important to understand the different approaches taken, so as to ensure clarity and avoid ambiguity
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 One of the fundamental differences between common and civil law contracts
 Good faith ‘not recognised’ in English law
– Freedom of contract
 But
– Misrepresentation, Mistake, Duress, Illegality, Frustration
– Statute
 Civil law jurisdictions often actively impose ‘good faith’ type duties
– Italy: duty to negotiate in good faith
– Germany: contracts interpreted with ‘trust and good faith’ (‘ Treu und
Glauben ’)
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 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
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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 Schuldverh ältnis )
NB: Common and Civil jurisdictions both have remedies for mistake and misrepresentation
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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
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English Law
 It is usual to provide a brief description of the Parties, including the full legal name of the contracting entity, its address and place of incorporation

Recitals are considered subordinate to the main body of the contract, and so less emphasis is put on them when a dispute arises
German / Italian Law
 More elaborate descriptions of the
Parties are often given, including details from the Company register, tax identification codes, and power of attorney information

Recitals are seen as the basis of the contract and are absolutely crucial in any interpretation following a dispute
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 Both common and civil jurisdictions have individual quirks
 Often need to check specific jurisdiction/seek the advice of local counsel
 EU legislation provides that an EU Company’s directors have authority to sign, so there is some reassurance
 In Germany, need to ensure the Company’s constitutional documents grant those who are acting on behalf of the organisation the power to bind it
 Power of Attorneys and signing authorities need to be scrutinised
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English 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
German Law
 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)
Italian Law
 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
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English Law

Freedom of contract – Parties can agree whatever price they want, even if it may appear unfair to an outsider
German Law

In Germany, the agreement of a price which is too low could constitute usury ( Wucher ) or could otherwise offend public morals ( sittenwidrig )
Italian Law

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
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 Most legal systems will void a contract if not sufficiently certain, but there are usually legal provisions for ‘filling in the gaps’
English 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
German Law
 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
Italian Law
 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
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English Law

Penalty clauses are not enforceable. This is distinct from liquidated damages clauses, where Parties may recover only their reasonable pre-estimate of expected actual loss
German Law

Penalty clauses can be permissible, but are not allowed in standard terms of business in a consumer to business relationship. If the penalty is unreasonably high
(even in a business to business relationship), it can be reduced by the court
Italian Law

Penalty clauses are permitted, but the court can reduce the amount of the penalty in case it is disproportionate in relation to the value for the creditor of the performance by the debtor
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English Law

Under English law you can sue for the ‘loss of a bargain’ and recover reasonably foreseeable losses caused by a breach of contract

Often Parties exclude liability for reasonably foreseeable losses that are potentially very large
German Law

German position is similar to that in England. However, liability for intentional harm or grossly negligent behaviour can never be excluded in advance
 It is harder to limit liability in consumer contracts
Italian Law

Liability for intentional harm, for gross negligence and for the breach of statutory law provisions cannot be limited
 Special provisions apply to weak counterparts
(e.g. consumers)
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English Law

No specific doctrine
 In extreme cases, the doctrine of frustration/impossibility might apply
 Provisions for force majeure are drafted in contracts accordingly
German Law

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
Italian Law

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
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English Law

Unilateral provisions are common, i.e. reference to a
Party’s standard terms ‘as amended from time to time’
German Law

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
Italian Law

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
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English 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
German Law

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
Italian Law

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
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English Law

Contracts with government come under normal contract law, although remedies like specific performance are unlikely

Care needs to be taken when dealing with local authoritiesthey can be acting ultra vires and therefore agreements might not be valid
German Law

Contracts with government entities are not always governed by German private law
 Although it is not an explicit concept, the German courts recognise a doctrine similar to the common law ultra vires
Italian Law

Contracts with public entities are generally governed by private law
 The case law recognizes the power of any public administration to enter into any contract which could be useful in the pursuit of such public administration purpose
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 ‘False Friends’ – words look the same but have different meanings (i.e. execution of a contract – signature or performance?)
 Even similar legal concepts may differ a lot in detail – quote the exact term; provide a good translation of the legal concept
 Be aware of ‘Euro English’
 Keep things short and simple
 In negotiations, be sure to explain exactly what you mean if wording is in two different languages
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 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
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Any questions please contact: juliet.reingold@simmons-simmons.com
sascha.kuhn@simmons-simmons.com
ariel.nachman@simmons-simmons.com
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