As I’m currently in Geneva, Switzerland, giving a series of seminars, I wanted to take the opportunity to post an item with a local flavor. To that end, I’d like to consider how contracts drafted in civil-law systems differ from contracts drafted by common-law lawyers.
It isn’t a subject that I’ve studied at any great length, so the following represents the doubtless outdated conventional wisdom on the subject culled from a handful of articles that address the subject. I’d be delighted to hear from people who have hands-on experience with both kinds of contracts.
Anglo-American Contracts Longer
The conventional view of U.S. (or rather Anglo-American) contracts is that they tend to be lengthy, with the parties attempting to address a broad range of contingencies raised by the transaction and incorporating, in the course of negotiation, an array of qualifications and limitations.
By contrast, a given civil-law contract might be one-third to one-half the size of a comparable U.S. agreement, and there’s less variation from contract to contract, as the parties don’t feel the need to address every contingency.
One might ask why this should be the case.
Jockeying for Position
In common-law systems, parties have traditionally been prepared to engage in much more jockeying for position. Each party is looking for an advantage over the other, and at the same time is keeping its back to the wall, trying to make sure that it is not the one taken advantage of.
It’s not surprising that this mixture of aggression and caution should be reflected in extra contract verbiage. The suggestion is that in civil law systems, the parties don’t engage in this sort of jockeying. But what might explain the distinction?
Differing Litigation Risks
One underlying reason might relate to litigation. Common-law lawyers and their clients might be willing to incur the costs of addressing contingencies in their contracts because they’re faced with a greater likelihood that the contingencies would otherwise have to be addressed in litigation. That’s because the U.S. legal system, at least, represents more fertile ground for litigation.
In civil-law countries, limits on pretrial discovery and motion practice, as well as the “loser pays” rule, greatly constricts a party’s ability to use litigation to impose costs on the other party. So there’s less need to guard against litigation in your contracts.
Civil-Law Communities More Homogeneous?
Also significant might be the fact that in the recent past, in at least some civil law jurisdictions, such a Germany, business communities have been more homogeneous than the U.S. business community.
They’ve been more concentrated in particular regions; transactions have involved a limited number of players, with outsiders such as private equity firms being comparatively rare; they’ve tend to use one of a small group of law firms. All this lends a certain predictability to a transaction, leading to a reduced need to rely on courts to enforce contract terms.
More Predictable Laws?
Also, compared with the U.S., some civil-law jurisdictions have much more statutory contract law that can be applied to complex transactions.
For example, the German Civil Code provides a statutory procedure for a right of first refusal; if the parties are satisfied with it, it means that the parties don’t have to specify how the right of first refusal operates. That on its own could slim a contract down by a page or so.
Distinction Becoming Blurred
Anglo-American firms are increasingly bringing their style of practice, including Anglo-American-style transaction documentation, to civil-law countries. These firms currently dominate large cross-border transactions and are making inroads into domestic middle-market transactions as well. It’s been suggested that as a result, in some countries civil-law-style contracts may become extinct.
This might just be a reflection of the increasing pace and diversity of business, with homogenous civil-law business communities becoming much more subject to outside influence.
Also, there’s the fact that for civil-law contracting norm to work, both sides have to buy into it. If one party doesn’t, that normally would mean that common-law-style drafting would be used for the transaction.